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THE    NEW    COMPETITION 


*  Competition  Is  War,  and '  War  Is  HelV "" 

*  ■-■■— ^— ii^-— -i^— ^^B— i^ 

•THE  NEW 
COMPETITION 

AN  EXAMINATION  OF  THE  CONDITIONS  UNDERLYING 
THE  RADICAL  CHANGE  THAT  IS  TAKING  PLACE  IN  THE 
COMMERCIAL  AND  INDUSTRIAL  WORLD— THE  CHANGE 
FROM  A  COMPETITIVE  TO  A  COOPERATIVE  BASIS 

BY 

ARTHUR  JEROME  EDDY 

AUTHOR  OF  "THE  LAW  OF  COMBINATIONS,"  ETC. 
FOURTH  EDITtoN  COMPLETELY  REVISED 

WITH  FULL  TEXTS  OF  CLAYTON  AND  FEDERAL  TRADE 
COMMISSION  LAWS,  AND  COMMENTS  THEREON 

I  BEVEasTH  EDITION 


CHICAGO 
A.  C.  McCLURG  &  CO. 

J  ^9*^ 


1 


f/ 

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i/'>!; 


COPYRIGHT.  1912.  BY 

D.  APPLETON  AND  COMPANY 


COPYRIGHT.  1913-1915,  BY 
A.  C.  McCLURG  ft  CO. 


Printed  in  the  United  Statei  of  America 


V.  H.  f  aU  |lttatlM0 


TO 


STEPHEN  S,  GREGORY,  ESQ., 

This  book  is  inscribed  as  a  slight  recognition  of 
his  unselfish  devotion  to  political  and  economic 
ideals,  some  of  which  may  find  inadequate  expres- 
sion herein,  and  as  a  memento  of  many  years  of 
personal  and  professional  friendship. 

The  Author 


FOREWORD 

This  book  deals,  first  of  all,  with  what  is  now  going  on 
— with  Facts;  secondly,  with  the  Principles  underlying  ac- 
tual conditions ;  thirdly,  with  Tendencies  so  far  as  they  can 
be  inferred  from  close  and  impartial  consideration  of  facts 
and  principles. 

No  attempt  is  made  to  fit  facts  to  a  preconceived  theory, 
or  stretch  any  stubbornly  held  theory  to  cover  unrelated 
facts.  Such  notions  as  the  writer  holds  have  been  slowly 
developed  during  years  of  intimate  contact  with  many  forms 
of  cooperation,  and  the  best  evidence  to  himself  that  he  has 
been  open-minded  in  his  observations  is  that  nearly  all  his 
early  ideas  regarding  competition  and  cooperation  have  been 
forced  to  yield  to  the  pressure  of  realities. 

The  reader  will  also  be  interested  to  know  that  many 
of  the  suggestions — even  to  the  most  radical — have  been 
tested  in  practice. 

In  so  far  as  the  book  has  any  merit  whatsoever  it  is  of 
as  much  value  to  the  laborer  as  to  the  employer,  to  the 
country  mechanic  and  merchant  as  to  the  large  corporation 
and  trust. 

Certain  chapters — *The  New  Competition,"  "The  Open- 
Price  Association,"  "Brutal  Competition,"  and  "The  Trust 
Problem,  Segregation  vs.  Disintegration" — appeared  in 
condensed  form  in  The  World's  Work, 


FOREWORD  TO  FOURTH  REVISED  EDITION 

The  friendly  reception  accorded  this  book  has  been  far 
beyond  the  expectations  of  publisher  and  writer. 

Better  still  has  been  the  practical  and  successful  appli- 
cation of  some  of  its  suggestions  by  keen  and  progressive 


FOREWORD 

business  men,  who  advocate  in  print  and  in  public  ad- 
dresses the  adoption  of  the  open  price  policy. 

The  passing  of  the  Clayton  and  Trade  Commission 
Laws  marks  a  radical  step  toward  finer  and  fairer  com- 
petitive methods;  hence  the  inclusion  of  those  laws  in  this 
revised  edition. 

Chicago,  June,  19 13. 


CONTENTS 


CHAPTER  PAGl 

I.    The  Old  Order  Changeth i 

IL    What  Is  Competition? 12 

III.  Competition  Is  War,  and  "War  Is  Hell"    .        .  19 

IV.  Growth  of  Cooperation 38 

V.    Brutal  Competition 59^"^ 

VI.    True  vs.  False  Competition 85 

VII.    The  Old  Competition 97 

VIII.    The  New  Competition 105 

IX.  The  Open-price  Policy  .        .        .        .        .        .115 

X.    Open-price  Association 123  4, 

XI.    Harmony 157 

XII.    Relations  with  Customers 190 

XIII.  Relations  with  Sellers 203 

XIV.  Relations  with  the  Public 225 

XV.    Vanishing  Industries 232 

XVI.    What  Is  a  Fair  Price? 243^-^ 

XVII.  The    Trust     Problem  —  Segregation    vs.     Dis- 
integration      271 

XVIII.  The  Labor  Problem  —  Integration  vs.  Aggrega- 
tion           293 

XIX.  Class  Legislation  and  Discrimination       .        .  319 

XX.    Constructive  Legislation 347 


Appendix  I.  Conditions  in  Canada 
Appendix  II.  Conditions  in  England 
Appendix  III.    Conditions  in  Germany     . 

Appendix  IV.    Clayton  Law 

Appendix    V.    Federal  Trade  Commission  Law 
Index 


359 
363 
368^ 

378^^ 
397  C^ 
409 


THE  NEW  COMPETITION 

CHAPTER   I 
THE  OLD   ORDER   CHANGETH 


^    "Competition  is  the  life  of  trade." 

"Competition  is  the  death  of  trade." 
I         One  proposition  is  as  true  as  the  other  according  to 
!  the  point  of  view  of  him  who  utters  it. 
{  To  the  man  who  has  downed  his  competitor  competi- 

;^  tion  is  the  life  of  trade;  to  the  competitor  who  is  downed 
[    competition  is  death. 

V.      Again,  to  the  purchaser  who  buys  bargains  from  mer- 
chants who  in  their  jealous  rivalry  sell  below  cost,  competi- 
tion is  the  life  of  trade;  to  the  merchants,  one  or  more  of 
whom  must  go  to  the  wall,  competition  is  fatal. 
r     To  the  public  who  buy  for  cost  or  less  than  cost  when 
j  rivalry  is  fierce,  competition  may  seem  a  good  thing,  but 
J  when  the  rivalry  results  in  disaster,  and  later  prices  go 
I    up  to  a  point  sufficient  to  make  good  the  losses  of  the 
survivors,  with  a  profit  added,  competition  is  wasteful  and 
costly. 

Nothing  is  more  certain  than  that  the  community,  the 
country  as  a  whole,  bears  all  the  cost  and  all  the  losses 
of  wasteful  competition;  whether  it  reaps  the  profits  is 
^another  question. 

I 


2  -      TliE  NEW  COMPETITION 

The  profits  may  be  spent  dsewhere,  the  losses — ^the 
waste  of  titrit;;;  of  e/i^rgy,  of  iTicn^y,  in  unsuccessful  efforts 
to  get  trade,  to  establish  a  business,  to  build  up  an  industry 
— cannot  be  shifted,  they  lodge  at  home,  are  borne  in  the 
long  run  by  the  entire  community,  and  covered  in  the  long 
run  in  the  prices  of  products. 

So  that  to  the  community  competition,  so  far  from 
being  the  life  of  trade,  may  be  the  reverse. 


II 


Competition,  blind,  vicious,  unreasoning,  may  stimulate 
trade  to  abnormal  activity,  but  such  a  condition  is  no  more 
sound,  healthy  "life"  than  is  the  abnormal  activity  of  the 
man  who  has  taken  a  little  too  much  alcohol — one  stimulant 
is  like  another,  exhausting  in  the  end. 

Competition  is  a  fetish  that  men  ignorantly  worship, 
but  the  cult  has  had  its  day,  the  sanctity  of  the  god  is  be- 
ing assailed,  the  people  are  waking  up  and  asking: 

"What  is  this  competition  and  why  should  it  be  hedged 
about  and  preserved  ?" 

The  country  merchant  asks  himself ;  "Why  is  it  a  good 
thing  for  me  to  undersell  the  man  across  the  way  and  try 
to  drive  him  out  of  business  ?  Why  is  it  a  good  thing  for 
him  to  imdersell  me  and  try  to  drive  me  out  of  business  ?" 

If  either  succeeds,  will  not  a  stranger  take  the  loser's  . 
place? 

The  country  mechanic  asks  himself:  "Why  should  I 
work  for  less  than  others  in  the  foolish  effort  to  starve 
them  out  of  the  village  ?  Why  should  they  try  to  take  the 
bread  from  my  mouth  by  working  for  less  than  I  must 
have  to  support  my  family?  What  gain  is  there  in  that 
sort  of  competition  ?" 

The  labor  union  says  to  its  members:  "You  shall  not 


THE  OLD  ORDER  CHANGETH  3 

compete  one  against  another  by  offering  to  work  for  lower 
wages  or  longer  hours,  that  sort  of  competition  is  dead." 
The  tendency  with  the  unions  is  to  go  a  step  further 
and  say:  "You  shall  not  even  compete  in  the  amount  of 
work  you  do  per  day,  but  each  man  shall  do  so  much  and 
no  more."  A  crude  solution  of  a  pressing  problem ;  a  very 
curt  answer  to  the  proposition,  "Competition  is  the  life  of 
trade." 


Ill 


The  Socialist  would  eliminate  competition  altogether,  a 
cardinal  principle  of  his  philosophy  being  that  it  is  not 
only  wasteful  but  inherently  wrong,  and  the  Socialist  must 
be  reckoned  with.  He  is  abroad  in  the  land,  he  is  making 
himself  felt  at  the  polls,  he  is  winning  and  holding  offices, 
he  is  causing  the  leaders  of  the  older  parties  no  little 
anxiety.  Why?  Because  the  people  are  becoming  So- 
cialists? 

Not  at  all. 

Socialism  as  Socialism  probably  has  little  if  any  greater 
appeal  to-day  than  it  had  a  generation  ago.  It  will  always 
have  its  ardent  followers,  but  in  its  more  logical  form  it  is 
too  abstract  a  theory  to  be  understood  and  attract  generally. 
Its  practical  suggestions  are  absorbed  by  older  political 
organizations,  with  the  result  that  the  Socialist  party  is  ever 
a  band  of  enthusiasts  "crying  loudly  in  the  wilderness." 

The  strength  of  Socialism  at  the  moment  lies  in  the 
fact  that  some  of  its  demands  coincide  with  the  tendencies 
of  the  hour.  Say,  if  you  please,  the  world  has  caught  up 
with  Socialism  in  certain  directions,  and  propositions  that 
seemed  revolutionary  twenty-five  years  ago — ^yes,  ten  years 
ago — ^are  now  debated  as  reasonable,  are  even  turned  into 
laws. 

More  or  less  unconsciously  the  labor  movement  has 


4  THE  NEW  COMPETITION 

traveled  converging  lines  with  Socialism.  Each  repudiates 
the  other,  yet  both  have  much  in  common,  and  of  late  the 
sympathetic  ties  are  being  recognized. 

Without  quite  knowing  it  they  are  in  complete  accord 
on  the  fundamental  proposition  that  competition,  as  hereto- 
fore understood  and  practiced,  is  an  evil  to  be  suppressed. 

What  partially  blinds  Labor  Unionism  to  the  viciousness 
of  competition  is  the  so-called  "conflict  between  Capital  and 
Labor.**  This  supposed  conflict  leads  labor  to  encourage 
"cut-throaf*  competition  where  capital  and  profits  are 
concerned,  while  decrying  it  where  labor  and  wages  are 
involved — an  illogical  position. 

Some  Socialists  in  their  hatred  of  capitalism  uphold 
laws — such  as  the  anti-trust  laws — that  are  supposed  to 
promote  competition,  quite  overlooking  the  obvious  truth 
that  such  legislation  is  contrary  to  all  the  tenets  of  Social- 
ism, being  the  over-ripe  fruit  of  individualism.  In  the 
main  the  more  philosophical  Socialist  writers  look  upon 
the  "trust"  as  the  final  stage  of  "Capitalism,"  the  fore- 
runner of  the  Socialistic  community. 

For  our  present  purpose  it  is  sufficient  to  point  out 
that  two  very  large  factors  in  modem  Society  are  opposed 
in  theory  and  practice  to  competition  as  commonly  under- 
stood. Unionism  will  have  none  of  it  in  the  world  of 
labor.    Socialism  would  have  none  of  it  in  the  world  at  all. 

When  to  the  opposition  of  these  two  factors  is  added 
the  opposition  of  Capitalists,  Society  would  seem  to  be 
pretty  nearly  a  unit  to  the  effect  that  competition  is  not 
the  good  thing  it  is  said  to  be. 


IV 

In  Europe  as  well  as  America  there  is  a  ferment  of 
new  ideas,  of  protest,  of  doubt,  of  discontent  regarding 


THE  OLD  ORDER  CHANGETH  5 

this  matter  of  competition.  The  old  ideas  do  not  seem  so 
sound,  they  do  not  ring  so  true  as  they  once  did;  they  do 
not  fit  present  conditions,  there  is  something  wrong. 

As  a  matter  of  fact,  they  never  were  true,  they  never 
were  more  than  superficially  sound. 

Competition  was  the  life  of  trade  only  when  trade  was 
piratic,  merciless.  Competition,  good,  old-fashioned  "cut- 
throat" competition,  belongs  to  trade's  buccaneering  days 
when  every  industry  flew  the  black  flag  and  the  appearance 
of  a  competitor  meant  war  to  the  knife. 

Conditions  have  changed,  men  no  longer  look  upon  one 
another  as  industrial  and  commercial  brigands.  We  are 
far  from  an  era  of  universal  good  feeling,  of  mutual  con- 
fidence, of  generous  and  hearty  cooperation,  but  the  world 
is  working  that  way. 

Steam  and  electricity  have  brought  countries,  cities,  in- 
dividuals, so  close  together  the  old  feeling  of  bitter  an- 
tagonism is  softened.  (^The  real  competitor  of  the  country 
merchant  is  not  the  fellow  on  the  opposite  corner,  but  the 
mail-order  store  a  thousand  miles  away.  The  real  com- 
petitor of  the  mine-worker  in  Pennsylvania  is  not  the  man 
in  the  next  shaft,  but  the  immigrant  boarding  the  steamer 
at  Naples.  The  only  competition  the  laborer  in  California 
fears  is  from  the  Orient.) 

Within  a  hundred  years  the  world  has  narrowed  to  a 
very  small  area.  Distance  has  been  well-nigh  annihilated; 
men,  once  far  apart  and  strangers,  are  now  near  neighbors ; 
in  close  contact  they  speak  to  one  another  with  ease. 

The  competition  of  isolation  is  no  longer  possible,  it 
never  was  profitable,  it  has  become  disastrous;  yet  a  very 
respectable  section  of  the  body  politic — louder  than  all,  the 
politicians — cry  out  for  it;  they  would  stem  the  tide  of 
progress  and  restore  the  obsolete. 

It  is  all  futile.  The  old  competition  is  passing  beyond 
recall.    The  new  is  coming,  coming  as  surely  as  the  con- 


6  THE  NEW  COMPETITION 

quest  of  the  air  is  coming,  coming  as  surely  as  other  and 
greater  inventions  and  discoveries  are  coming  to  weld  men 
closer  together.  All  the  King's  horses  and  all  the  King's 
men  cannot  put  competition  back  again.  It  is  fallen, 
cracked,  and  forever  spilled. 


In  a  recent  case  in  the  Supreme  Court  of  the  United 
States  a  Justice,  distinguished  for  his  philosophical  insight 
and  literary  expression,  said: 

"I  think  that  we  greatly  exaggerate  the  value  and  im- 
portance to  the  public  of  competition  in  the  production  or 
distribution  of  an  article,  as  fixing  a  fair  price.  What 
really  fixes  that  is  the  competition  of  conflicting  desires. 
We,  none  of  us,  can  have  as  much  as  we  want  of  all  the 
things  that  we  want.  Therefore,  we  have  to  choose.  As 
soon  as  the  price  of  something  that  we  want  goes  above 
the  point  at  which  we  are  willing  to  give  up  other  things 
to  have  that,  we  cease  to  buy  it  and  buy  something  else. 
Of  course,  I  am  speaking  of  things  that  we  can  get  along 
without."^ 

Other  courts  have  said: 

"Excessive  competition  may  sometimes  result  in  actuai 
injury  to  the  public,  and  competitive  contracts,  to  avert  per- 
sonal ruin,  may  be  perfectly  reasonable.  It  is  only  when 
such  contracts  are  publicly  oppressive  that  they  become  un- 
reasonable and  are  condemned  as  against  public  policy."  ^ 

"While,  without  doubt,  contracts  which  have  a  direct 
tendency  to  prevent  a  healthy  competition  are  detrimental 
to  the  public,  and  consequently  against  public  policy,  it  is 
equally  free  from  doubt  that  when  such  contracts  prevent 
an  unhealthy  competition  and  yet  furnish  the  public  with 
adequate  facilities  at  fixed  and  reasonable  rates,  they  are 

*  Dissenting  opinion  of  Justice  Holmes,  in  Dr.  Miles  Medical  Co. 
vs.  Park  &  Sons  Co.,  220  U.  S.  p.  373- 

'People  vs.  North  River  Sugar  Refining  Company,  54  Hun.  354, 
and  N.  Y.  S.  406. 


THE  OLD  ORDER  CHANGETH  7 

beneficial  and  in  accord  with  sound  principles  of  public 
policy.  For  the  lessons  of  experience,  as  well  as  the  deduc- 
tion of  reason,  amply  demonstrate  the  public  interest  is  not 
subserved  by  competition  which  reduces  the  rate  of  trans- 
portation below  the  standard  of  fair  compensation."  ^ 

"I  think  it  would  be  unsafe  to  adopt  as  a  rule  of  law 
every  maxim  which  is  current  in  the  counting  room.  It 
was  said  some  three  hundred  years  ago  that  trade  and 
traffic  were  the  life  of  every  commonwealth,  especially  of 
an  island.  ^  If  it  be  true  also  that  competition  is  the  life 
of  trade,  it  may  follow  such  premises  that  he  who  relaxes 
competition  commits  an  act  injurious  to  trade;  and  not 
only  so,  but  he  commits  an  overt  act  of  treason  against 
the  commonwealth.  But  I  apprehend  that  it  is  not  true 
that  competition  is  the  life  of  trade.  On  the  contrary, 
that  maxim  is  the  least  reliable  of  the  host  that  may  be 
picked  up  in  every  market  place.  It  is,  in  fact,  a  shib- 
boleth of  mere  gambling  speculation,  and  is  hardly  en- 
titled to  take  rank  as  an  axiom  in  the  jurisprudence  of  this 
country.  I  believe  universal  observation  will  attest  that  for 
the  last  quarter  of  a  century  competition  in  trade  has  caused 
more  individual  distress,  if  not  more  public  injury,  than 
the  want  of  competition.  Indeed,  by  reducing  prices  be- 
low or  raising  them  above  values  (as  the  nature  of  the 
trade  prompted),  competition  has  done  more  to  monopolize 
trade,  or  to  secure  exclusive  advantages  in  it,  than  has 
been  done  by  contract."  ^ 

It  is  interesting  to  find  such  expressions  regarding  com- 
petition from  the  mouths  of  judges  called  upon  to  decide 
actual  cases  involving  competition.  Theirs  is  no  academic 
theory  evolved  in  the  seclusion  of  the  closet,  but  con- 
clusions reached  in  the  adjustment  of  controversies  be- 
tween man  and  man. 

There  are  plenty  of  courts  that  have  held  otherwise, 
that  have  talked  about  competition  in  the  old  way,  that 

*  M.  &  L.  R.  R.  Co.  vs.  Concord  R.  R.  Co.,  66  N.  H.  lOO. 
'  City  of  London's  Case,  8  Co.  125. 

•Kellogg  vs.  Larkin  (1851,  3  Pinney  Wis.)  123,  56  Am.  Dec 
178-181. 


8  THE  NEW  COMPETITION 

have,  in  short,  treated  it  as  a  fetish,  instead  of  critically 
examining  its  claims  to  immunity. 


VI 


The  world  is  filled  with  men  who  repeat,  parrot-like, 
what  others  have  said;  that  is  the  easy,  the  natural,  the 
safe  thing  to  do.  It  may  be  just  as  well  that  the  over- 
whelming majority  of  men  do  this,  for  stability  depends 
upon  tradition,  but  progress  follows  in  the  footsteps  of 
him  who  challenges,  who  utters  the  insistent  "Why?"  who 
accepts  nothing  on  hearsay,  but  goes  straight  to  the  root 
of  things  and  finds  out  for  himself. 

It  is  the  business  of  the  ofiEce-seeker  and  holder  to 
curry  favor — that  is,  he  thinks  it  is,  and  it  is  this  convic- 
tion that  governs  his  tongue.  He  speaks  the  things  he 
thinks  the  people  wish  to  hear.  He  does  not  know  they 
would  like  to  hear  the  new  thing  and  the  true  thing.  He 
does  not  realize  that  while  he  is  repeating  what  he  has 
heard  and  what  he  has  read,  reiterating  the  worn-out 
phrases,  there  may  be  those  in  his  audience  who  are  think- 
ing about  coming  things,  who  are  eagerly  listening  for 
just  one  word  that  will  throw  some  light  on  the  problems 
of  the  day,  and  they  are  the  only  ones  worth  talking  to. 

Of  what  use  is  it  to  talk  to  the  laborer  or  the  small 
merchant  about  the  glorious  benefits  of  the  old  competi- 
tion when  they  know  it  is  the  old  competition  that  is 
stifling  them,  when  the  laborer  knows  that  his  Union  has 
absolutely  suppressed  competition  in  his  particular  trade, 
when  the  merchant  knows  that  if  the  competition  to  which 
he  is  being  subjected  at  the  moment  continues  six  months, 
he  will  be  bankrupt  ? 

The  man  who  hires  labor  or  buys  goods  may  applaud 
the  familiar  utterance,  but  even  he  has  his  competition  in 


THE  OLD  ORDER  CHANGETH  9 

what  he  has  to  sell,  and  while  he  would  like  to  destroy  the 
labor  union  and  prevent  the  merchant  from  cooperating 
with  other  merchants,  he,  himself,  has  his  own  interests  he 
would  like  to  protect  by  some  form  of  combination  with 
his  competitors. 

While  these  words  are  being  written  the  Governors  of 
a  number  of  Southern  States  are  conspiring  together  to 
devise  a   scheme  whereby  their  cotton-growers   will   get' 
better  prices  for  their  cotton,  whereby  corppetition  will  be 
checked,  production  controlled,  and,  in  the  end,  the  mills- 
be  made  to  pay  more  for  raw  material.    A  laudable  enter-, 
prise  surely — from  the  point  of  view  of  the  grower — ^but 
how  about  the  consumer,  and  how  about  the  law,  and  how 
about  the  speeches  of  those  very  Governors  in  support  of 
those  laws  which  say  competition  must  flourish  unfettered  ? 

Congressmen  and  Senators  from  the  cotton-growing 
States  are  especially  eloquent  in  this  behalf,  the  Sherman 
law  has  no  more  fiery  and  uncompromising  defenders — 
when  Northern  trusts  are  involved. 


VII 


Efforts  to  suppress  competition  in  products  of  the  soil 
are  not  confined  to  the  Southern  States.  In  the  North  high 
political  officials  have  lent  the  sanction  of  their  presence 
and  approval  to  movements  to  control  prices  of  farm 
products.  In  fact,  so  far  as  the  politician  is  concerned,  he 
sees  no  evil  in  the  union  of  laborers,  cotton-growers,  to- 
bacco-growers and  farmers — i.  e.,  voters — to  absolutely  fix 
prices;  they  may  combine,  strike,  boycott,  pool,  store,  de- 
stroy, do  anything  they  please,  but  let  the  capitalist,  the 
employer,  the  manufacturer,  do  a  tithe  of  these  things  and 
there  is  trouble. 

To  the  politician  the  combination  of  labor  can  do  no 


10  THE  NEW  COMPETITION 

wrong,  the  combination  of  capitalists  can  do  no  right. 
Only  the  judge  who  is  called  upon  to  administer  the  law  to 
all  men  alike  sees  no  distinction,  and,  following  the  letter 
of  the  law,  impartially  condemns  combinations  of  both, 
thereby  proving  the  futility  of  the  law,  for  if  there  is  any- 
thing certain  it  is  that  combinations  of  labor  are  with  us 
to  stay  in  one  form  or  another,  and  it  is  no  whit  less 
certain  that  combinations  of  employers  are  here  to  stay, 
and  it  is  for  society  to  make  the  best  use  of  both. 


^    VIII 

Times  are  changing  and,  with  the  times,  business  meth- 
ods. Secrecy  is  yielding  to  publicity,  men  are  coming  out' 
into  the  open  and  dealing  more  fairly  with  one  another. 
As  an  inevitable  result  competition  is  undergoing  a  change, 
the  old  is  giving  way  to  a  new,  true  competition  is  taking 
the  place  of  the  false. 

The  country  feels  that  things  are  happening,  but  they 
are  happening  so  fast  it  does  not  quite  comprehend.  The 
people  do  not  understand  the  new  competition  that  is  slowly 
but  surely  taking  the  place  of  the  old,  courts  do  not  under-* 
stand  it,  legislatures  do  not  understand  it,  therefore  they 
oppose  it  and  vainly  try  to  preserve  the  old  and  vicious 
order  of  things — try  to  make  men  fight  when  they  no  ' 
longer  wish  to  fight,  to  make  them  destroy  one  another 
industrially  and  commercially  when  they  are  striving  to 
establish  industrial  and  commercial  peace. 

The  old  cry,  "Competition  is  the  life  of  trade,"  is  yield- 
ing to  the  new  cry,  "Cooperation  is  trade."  The  old  cry  is 
the  echo  of  primitive  and  barbaric  conditions;  it  never  did 
mean  competition  on  terms  of  fairness  and  equality,  it 
meant  the  relentless  suppression  of  the  weak*  the  merciless 


THE  OLD  ORDER  CHANGETH  ii 

triumph  of  the  strong,  it  meant  methods  so  questionable 
they  are  now  condemned  as  criminal. 

The  old,  with  its  unfair  advantages,  its  secret  prices ' 
and  rebates,  its  conspiracies  to  ruin  competitors,  help  . 
favored  parties,  localities,  towns,  at  the  expense  of  others, 
is  passing;  the  new  is  taking  its  place,  is  winning  its  way 
in  spite  of  ignorant  clamor,  regardless  of  legislative  enact- 
ments, in  the  face  of  hampering  decisions ;  it  is  winning  its 
way  because,  fundamentally,  it  is  right — it  is  progress. 


CHAPTER   II 
WHAT  IS   COMPETITION? 

I 

What  is  competition? 

The  man  in  the  street  laughs  at  the  question:  "Why, 
everybody  knows  what  competition  is.'* 

"Well,  what  is  it?" 

"It  is  the  effort  of  the  other  fellow  to  get  my  job/' 
the  laborer  cries. 

"It  is  the  effort  of  the  other  man  to  get  my  customers," 
the  merchant  and  manufacturer  respond. 

"It  is  the  fierce  struggle  for  life  and  means,  the  elimina- 
tion of  the  weak,  the  survival  of  the  strong,"  the  biologist 
says,  and  dismisses  the  subject. 

Is  it  so? 

Then  competition  is  not  worth  preserving;  it  is  a  bio- 
logical rather  than  an  economic,  a  natural  rather  than  a  hu- 
man condition;  it  is  part  of  the  philosophy  of  evolution 
rather  than  a  matter  of  ethics;  it  is  on  a  level  with  those 
relentless  forces  with  which  men  are  striving;  like  the 
familiar  doctrine  of  the  "survival  of  the  fittest"  it  is  more 
than  non-human  it  is  inhuman. 


II 

Granted  that  the  universe  is  an  evolution,  that  man  is  an 
evolution,  that  society  is  an  evolution — ^that  all  are  products 

12 


WHAT  IS  COMPETITION?  13 

of  that  one  fundamental  law,  the  survival  of  the  fittest, 
which  is  neither  more  nor  less  than  competition  in  its  fierc- 
est form — what  then? 

Do  we  pass  laws  to  foster  this  competition,  to  make  it 
more  certain  that  the  weak  disappear  and  the  strong  sur- 
vive?   Do  we  bend  all  our  efforts  to  that  end? 

No,  only  in  the  breeding  of  plants  and  animals  do 
we  try  to  aid  the  law  of  natural  selection,  and  even  with 
animals  we  are  tender  toward  the  sick  and  old — toward 
those  nature  is  trying  to  eliminate.  We  even  pass  laws  to 
protect  them  Snd  organize  societies  to  help  them. 

When  it  comes  to  human  beings  only  savages  permit 
the  law  of  the  survival  of  the  fittest  to  work  unchecked; 
they  expose  infants,  abandon  the  sick,  kill  the  aged — ^they 
are  evolutionists  without  human  compunctions,  they  are 
biologists  without  hearts. 

Civilized  man,  in  his  struggle  for  existence,  forgets 
that  law  which  the  evolutionist  says  is  the  foundation  of 
progress.  Were  it  not  for  a  few  savage  examples  to  the 
contrary  we  might  say  he  fights  it  instinctively. 

But  fight  it  he  does  with  laws,  with  customs,  with' 
moral  sanctions,  with  social  conventions,  with  individual 
standards  of  right  and  wrong,  with  praise  for  those  who 
sacrifice  their  lives  for  others,  with  words  of  scorn  for  the 
selfish  and  cowardly — in  short,  with  almost  every  legal,  so- 
cial, and  moral  force  do  men  fight  for  the  preservation  of 
the  sick,  the  weak,  the  helpless,  the  very  beings  the  cold 
doctrine  of  evolution  says  should  be  eliminated. 

Of  the  struggles  for  existence  in  the  animal  world 
Huxley  said,  "The  creatures  are  fairly  well  treated  and 
set  to  fight;  whereby  the  strongest,  the  swiftest,  the  cun- 
ningest,  live  to  fight  another  day." 

Of  the  struggle  in  the  human  world  he  says  in  a  later 
lecture,  "Social  progress  means  a  checking  of  the  cosmic 
forces  at  every  step,  and  the  substitution  of  another,  which 


14  THE  NEW  COMPETITION 

may  be  the  ethical  process ;  the  end  of  which  is  not  the  sur- 
vival of  those  who  may  happen  to  be  the  fittest,  in  respect 
to  the  whole  of  the  conditions  which  exist — but  of  those 
who  are  ethically  the  best." 

And  the  proof  of  the  ethically  best,  of  the  purest  and 
loftiest  souls,  lies  in  the  care  taken  of,  and  the  sacrifices 
made  for,  the  weak,  the  idiotic,  the  insane,  the  criminal — if 
you  please. 

In  the  language  of  another,  "If  it  be  true  that  reason 
must  direct  the  course  of  human  evolution,  and  if  it  be  also 
true  that  selection  of  the  fittest  is  the  only  method  available 
for  that  purpose,  then,  if  we  are  to  have  any  race  improve- 
ment at  all,  the  dreadful  law  of  the  destruction  of  the  weak 
and  helpless  must,  with  Spartan  firmness,  be  carried  out 
voluntarily  and  deliberately.  Against  such  a  course  all  that 
is  best  in  us  revolts." 


Ill 


In  his  social  relations  man  has  made  vast  strides  in  ad- 
vance of  the  bald  biological  proposition,  progress  is  a  sur- 
vival of  the  fittest. 

In  his  commercial  and  industrial  relations  he  is  in  that  ' 
savage  condition  wherein  the  "destruction  of  the  weak  and 
helpless"  is  carried  out,  not  only  "voluntarily  and  deliber- 
ately" and  "with  Spartan  firmness,"  but  with  precisely  the 
satisfaction  a  Roman  audience  watched  one  gladiator  slay 
another,  or  a  wild  beast  devour  a  Christian. 

A  distinguished  professor  says:  "The  big  company  has 
a  right  to  beat  the  little  one  in  an  honest  race  for  cheap- 
ness in  making  and  selling  goods;  but  it  has  no  right 
to  foul  its  competitor  and  disable  it  by  an  underhand 
blow."  ^ 

That  is  the  theory  of  the  thorough-going  evolutionist — ■ 

'  Prof.  John  B.  Dark,  "The  Control  of  Trusts,"  p.  15. 


WHAT  IS  COMPETITION?  15 

the  "big"  fellow"  has  the  right  to  survive  because  he  has 
the  brute  force,  the  "little  fellow"  must  and  should  go  to 
the  wall  in  order  that  the  "fittest"  may  live  and  the  com- 
mercial race  be  improved ! 

Strange  how  these  crude  propositions  drawn  from  nat- 
ural development  persist  in  the  field  of  economics  long 
after  they  have  disappeared  from  the  field  of  ethics. 

In  all  social,  mental,  moral  progress,  in  their  daily  lives, 

men  give  the  lie  to  the  proposition  that  the  strong  have 

the  right  to  elbow  the  weak  to  one  side ;  on  the  contrary,  it 

is  recognized  that  the  most  precious  privilege  of  the  strong 

;f  is  the  succoring  of  the  weak — that  is  life  at  its  best. 

If  such  is  the  law  of  man's  social,  intellectual,  and  moral 
development,  why  should  not  the  same  high  obligations  ob- 
tain in  his  commercial  and  industrial  development  ?  ^ 

That  is  a  question  every  writer,  every  speaker  on  the 
subject  should  ask  himself,  and  remain  silent  until  the 
answer  comes,  for  at  heart  it  is  not  a  question  of  making 
money  but  of  making  men. 

It  is  a  question  every  legislator  should  be  able  to  answer 
before  he  frames  new  laws  to  encourage  the  old,  the  nat- 
ural, the  brutal  competition. 

Why  pass  laws  to  help  one  man  to  get  the  work,  the 
customer,  the  livelihood,  the  very  bread  of  another?  Why 
copy  nature  in  her  most  drastic  mood? 


IV 


Nature  is  merciless,  she  knows  no  pity.  "Survival  of 
the  fittest"  is  her  goal.  The  way  is  strewn  with  corpses  of 
the  weak,  with  the  debris  of  the  rejected.  Nature  has  no 
use  for  the  lame,  the  halt,  and  the  blind ;  her  prizes  are  to 
the  strong,  and  to  only  those  of  the  strong  who  have  no 
heart,  who  unfeelingly  trample  on  the  necks  of  others.    The 


1 6  THE  NEW  COMPETITION 

slightest  hesitation  is  fatal ;  the  man  who  lags  behind  to  lend  I 
a  helping  hand  never  catches  up;  the  man  who  lifts  the! 
weak,  carries  the  old,  sits  by  the  side  of  the  sick,  is  a  fool. 

Nature's  competition  is  a  battle  in  which  no  quarter  is 
given. 

Why  should  man  compete  so  blindly,  so  mercilessly? 
Why  should  we  seek  to  make  it  a  law  of  the  industrial 
world  that  only  the  young,  the  strong,  the  vigorous  shall 
find  employment? 

Why  should  it  be  a  law  of  the  commercial  world  thatf 
only  the  big,  the  rich,  the  powerful  shall  survive? 

Because  that  is  the  natural  order  of  things  it  does  not| 
follow  it  should  be  the  human. 

The   human   law   should   be   not  the   survival   of  the 
strong,  but  the  survival  of  all,  of  the  best  there  is  in  all, 
and,  oftentimes,  there  is  more  of  good,  more  of  real  value/ 
to  humanity  in  the  weak  than  in  the  strong. 

The  decrepit  body  may  be  of  little  use  to  nature,  but 
to  mankind  it  may  possess  a  priceless  content,  and  even 
though  the  aged  are  a  burden  from  a  material  point  of 
view,  they  are  needed  to  develop  those  qualities  of  sym- 
pathy and  unselfishness,  of  devotion,  and  love  that  lift  men 
toward  the  angels. 

^No,  competition — true  competition — is  not  the  mere 
striving  of  two  men  to  get  the  same  job,  the  same  customer,! 
the  same  material  advantage — it  must  be  something  finer! 
and  better  than  that.  '' 


Toward  contests  for  industrial  success  the  attitude  of 
the  American  public  is  that  of  the  eager  spectator  at  a 
prize  fight — the  fiercer,  the  bloodier  the  contest  the  better; 
the  slightest  sign  of  relaxation  on  the  part  of  either  con- 
testant, the  slightest  sign  of  a  disposition  to  quit  is  greeted 


WHAT  IS  COMPETITION?  17 

with  howls  of  derision,  the  fight  must  go  to  the  limit,  there 
must  be  no  let-up  before  the  final  blow,  and  the  greater  the 
punishment  received  by  both  the  more  successful  the  event 
— from  a  sporting  point  of  view. 

With  just  that  indifference  to  the  fate  of  the  individual 
does  the  public  watch  two  merchants  or  manufacturers 
struggle  for  supremacy.  Everybody  knows  the  contest  can- 
not last  long,  that  one  or  the  other,  perhaps  both  men,  will 
go  into  bankruptcy  to  the  detriment  of  creditors,  employees, 
families.  Everybody  knows  that  when  one  is  disposed  of 
somebody — ^and  that  "somebody**  is  the  public — must  pay' 
the  cost  of  the  wasteful  rivalry,  that,  in  the  long  run,  no 
good  can  result  from  men  trying  to  ruin  each  other  by  sell- 
ing goods  below  cost,  yet  if  the  two  try  to  get  together  to  put 
an  end  to  the  disastrous  competition  they  are  liable  to  prose- 
cution as  criminals.  If  they  organize  a  company  to  own  and 
operate  both  their  stores  or  factories  the  combination  is  a 
monopoly,  or  in  restraint  of  trade,  and  a  violation  of  law. 
The  public,  like  the  spectator  at  the  prize  fight,  howls  in 
anger  at  the  slightest  sign  of  cessation  of  hostilities  before 
a  "knock-out.'* 

That  sort  of  competition  is  not  worth  while.  It  is  not 
worth  fostering  and  preserving.  It  savors  of  the  dark  ages 
of  progress,  of  those  primitive  and  savage  conditions  when 
the  weak  were  abandoned,  the  old  were  killed.  It  is  a  curi- 
ous persistence  of  a  natural,  a  biological  law  in  the  indus- 
trial world  long  after  man  in  his  social  and  moral  relations 
has  advanced  to  higher  and  finer  ideals. 

^Morality  has  made  progress  in  every  department  of  hu- 
man thought  save  that  of  economics.  Ethical  standards 
have  been  set  up  in  every  branch  of  human  activity  save 
that  of  making  money.  / 


V 


i8  THE  NEW  COMPETITION 


VI 


Of  all  the  rivalries  in  which  man  engages  brute  competi- 
tion in  the  production  and  distribution  of  wealth  is  the 
most  contemptible,  since  it  is  the  most  sordid,  a  mere 
money-making  proposition,  unrelieved  by  a  single  higher 
consideration. 

This  is  not  the  fault  of  competition — of  rivalry  as  such 
— ^but  of  ouV  industrial  economy.  There  is  nothing  in- 
herently wrong  in  rivalry  in  the  large  sense  of  the  term; 
on  the  contrary,  it  is  a  most  powerful  incentive  toward  per- 
fection, ethical,  aesthetic,  and  material ;  it  is  the  most  power- 
ful incentive  toward  cooperation,  which  is  the  foundation 
of  progress.  / 

^  /  Rivalry — competition  in  its  broadest  significance — is  the 
earnest,  intelligent,  friendly  striving  of  man  with  man  to 
attain  results  beneficial  to  both;  it  is  neither  relentless  nor 
,  indifferent ;  it  is  neither  vicious  nor  vindictive,  it  is  not  in- 
considerate, nor  is  it  wholly  selfish;  it  is  not  mechanical, 
but  human,  and  should  be,  therefore,  sympathetic/ 


CHAPTER   III 
COMPETITION  IS  WAR,  AND  "WAR  IS  HELL" 

I 

Academic  definitions  do  not  help  much  toward  ascertain- 
ing what  competition  really  is. 

One  says  it  is  the  "aspiration  of  two  or  more  persons 
to  the  same  office,  dignity,  or  other  advantage,"  which  is 
about  as  illuminating  as  to  say  it  is  a — word. 

A  little  more  specifically  it  is  said  to  be,  "the  rivalry 
which  exists  between  manufacturers,  merchants,  etc., 
whether  concerning  the  quality  of  their  products,  their  mer- 
chandise, etc.,  or  concerning  prices,  with  a  view  to  sharing 
the  profits  of  the  same  branch  of  commerce,  industry,  etc."  ^ 

*A  writer  in  the  last  edition  of  the  Encyclopedia  Britannica  says: 
"Competition,  in  the  sense  in  which  the  word  is  still  used  in  many 
economic  works,  is  merely  a  special  case  of  the  struggle  for  survival, 
and,  from  its  limitation,  does  not  go  far  toward  explaining  the  actual 
working  of  modern  institutions.  To  buy  in  the  cheapest  market  and 
sell  in  the  dearest;  to  secure  cheapness  by  lowering  the  expenses  of 
production;  to  adopt  the  less  expensive  rather  than  the  more  expensive 
method  of  obtaining  a  given  result — these  and  other  maxims  are  as 
old  as  human  society.  Competition,  in  the  Darwinian  sense,  is  charac- 
teristic, not  only  of  modern  industrial  states,  but  of  all  living  organ- 
isms; in  the  narrower  sense  of  the  'higgling  of  the  market,'  as  found 
on  the  Stock  Exchange,  in  the  markets  of  old  towns,  in  medieval  fairs 
and  Oriental  bazaars.  In  modern  countries  it  takes  myriads  of  forms, 
from  the  sweating  of  parasitic  trades  to  the  organization  of  scientific 
research.  Economic  motives,  again,  are  as  varied  as  the  forms  of 
competition  and  their  development  is  coeval  with  that  of  human  society. 

"They  have  to  be  interpreted  in  every  age  in  relation  to  the  state  of 
society,  the  other  notions  or  ideals  with  which  they  are  associated,  the 
kind  of  action  they  inspire  and  the  means  through  which  they  operate. 
Apparently  the  same  economic  notions  have  led  in  the  same  age  and 

19 


20  THE  NEW  COMPETITION 

A  better  definition  is  that  it  is  "The  effort  of  different 
individuals  engaged  in  the  same  line  of  activity  each  to 
benefit  himself,  generally  at  the  other's  expense,  by  render- 
ing increased  service  to  outside  parties."  ^ 

A  German  writer  separates  the  struggle  for  existence 
into  two  divisions,  (a)  struggles  for  domination,  and  (b) 
struggles  for  annihilation.  "The  struggle  between  buyer 
and  seller  in  a  bargain  is  of  the  former  sort;  each  tries  to 
make  the  other  serve  him  as  fully  as  possible,  but  does  not 
desire  his  annihilation.  The  struggle  between  different  buy- 
ers, or  between  different  sellers,  is  of  the  latter  class ;  each  is 
desiring  to  get  rid  of  the  other  so  far  as  he  can.  Competi- 
tion, then,  is  the  legalised  form  of  the  struggle  for  annihila- 
tion in  modern  life.  .  .  .  Legalized  because  of  its 
tendency  to  benefit  an  indefinite  number  of  third  parties, 
and  thus  become  a  means  of  collective  economy  of  force  and 
of  general  benefit  to  society,"  ^ 

II 

Why  is  it  so  difficult  to  define  competition?  Why  are 
the  definitions  suggested  so  vague  in  terms  they  include  al- 
most every  motive  that  controls  human  effort? 

in  the  same  nation  to  monopoly  and  individual  enterprise,  protection 
and  free  trade,  law  and  anarchy.  In  our  own  time  they  have  inspired 
both  the  formation  of  trade  combinations  and  attempts  to  break  them 
up,  hostility  to  all  forms  of  state  interference,  and  a  belief  in  collec- 
tivism." 

*  "Dictionary  of  Philosophy  and  Psychology,"  edited  by  James 
Mark  Baldwin,  Ph.D.  The  definition  and  article  are  by  President  A.  T. 
Hadley,  of  Yale,  who  goes  on  to  say:  "Important  as  the  term  'com- 
petition' is,  there  have  been  few  attempts  to  define  it."  It  is  not  taken 
up  in  Malthus'  "Definitions."  Mill  lays  down  important  propositions 
about  its  action,  but  seems  to  assume  the  fundamental  meaning  of  the 
term  as  self-evident.  Walker  defines  it  by  antithesis,  as  opposed  to 
combination,  custom,  statement.  Marshall  says:  "The  strict  meaning 
of  competition  seems  to  be  the  racing  of  one  person  against  another 
with  special  reference  to  the  bidding  for  the  sale  or  purchase  of  any- 
thing." 

'  Article  above  referred  to. 


COMPETITION    IS   WAR  m 

The  trouble  is  we  attribute  too  much  to  competition; 
it  is  either  feared  as  an  evil  or  worshipped  as  a  fetish,  it  is 
held  accountable  for  nearly  everything  that  happens,  not 
only  in  the  industrial  and  commercial  world,  but  in  the  de- 
velopment of  society,  of  even  life  itself ;  it  is  a  biological,  a 
sociological,  a  philosophical,  an  economic,  a  political  term, 
used  indiscriminately  in  a  thousand  connections,  meaning 
one  thing  here,  another,  and  fundamentally  different  thing, 
there. 

In  short,  competition  is  on  a  level  and  practically  syn- 
onymous with  terms  such  as  "struggle,"  "contest,"  "ri- 
valry," hence  its  broadest  definition  can  be  no  more  specific 
than  their  definitions. 

Everybody  knows  what  a  competition  is,  but  no  one  can 
say  off-hand  what  competition  is ;  everybody  knows  what  a 
struggle  is,  but  few  could  give  a  definition  of  the  term  so 
comprehensive  as  to  include  every  conceivable  struggle. 

That  is  the  trouble  with  defining  competition  generally. 
It  must  be  considered,  not  necessarily  defined,  in  connection 
with  each  particular  rivalry. 

In  its  elements  competition  is : 

1.  The  effort, 

2.  To  secure, 

3.  An  advantage  over  others. 

But  the  same  is  true  of  "contest"  and  "rivalry."  Yet 
everybody  knows,  or  has  the  feeling,  that  competition  has 
a  meaning  of  its  own,  especially  when  used  in  connection 
with  trade  and  commerce,  and  so  it  has,  but  it  is  a  meaning 
that  cannot  be  defined  because  it  is  not  so  much  a  term  of 
specific  significance  as  it  is  the  appropriation  by  long  usage 
of  a  particular  word  to  a  particular  connection. 

"Contest  is  the  life  of  trade,"  or  "Rivalry  is  the  life  of 
trade"  would  answer  just  as  well  and  mean  as  much. 

Biology  has  appropriated  the  word  "struggle" — "strug- 


22  THE  NEW  COMPETITION 

gle  for  existence" — "competition"  for  existence  would  have 
answered  just  as  well. 

The  biologist  may  lay  great  stress  upon  the  struggle  for 
existence  as  a  biological  fact,  he  may  even  go  so  far  as  to, 
elevate  the  fact  to  the  dignity  of  a  condition  of  progress, 
but  he  does  not  set  up  his  "struggle"  as  a  fetish  to  be  pro- 
tected by  law,  to  be  preserved  and  encouraged  at  all  hazards, 
as  political  and  economic  writers  insist  their  competition 
shall  be  fostered^ 

The  humane  philosopher  accepts  the  "struggle  for  ex- 
istence," but  he  accepts  it  reluctantly  and  regretfully;  he 
seeks  ways  to  modify  it,  he  gladly  looks  to  human  sym- 
pathies and  human  cooperation  to  alleviate,  if  not  com- 
pletely nullify,  the  harsh  law. 

In  sharp  contrast,  the  old-school  economist — followed 
by  legislatures  and  courts — magnifies  his  competition  to  the 
proportions  of  a  god,  a  god  like  unto  those  savage  idols 
that  demand  the  blood  of  human  sacrifices,  of  women  and 
little  children. 


Ill 


The  cry  that  competition  must  be  preserved,  must  not 
be  curtailed,  must  not  be  suppressed,  is  a  senseless  cry;  in 
and  of  itself  it  has  no  more  meaning  than  a  cry  that  "strug- 
gle must  be  preserved,"  "rivalry  must  not  be  suppressed." 

Some  competitions,  like  some  struggles,  should  be  rigidly 
suppressed  by  law,  others  by  custom,  others  by  voluntary 
cooperation.  Per  contra,  there  are  many  forms  of  com- 
petition that  are  so  beneficial  they  should  be  neither  sup- 
pressed nor  curtailed. 

It  all  depends  upon  the  particular  competition,  the  par- 
ticular form  of  rivalry. 

If  the  average  man  were  asked  the  following  questions 


COMPETITION    IS   WAR  23 

he  would  probably  make  the  following  replies — each  con- 
taining a  broad  qualification : 

"Do  you  believe  in  fighting?'* 

"Why  no — but  there  are  times " 

"Do  you  believe  in  contests?'' 

"It  all  depends  upon  what  they  are." 

"Do  you  believe  in  rivalry?'* 

"Of  course,  when  it  is '* 

"Do  you  believe  in  competition?" 

"Generally  speaking,  yes,  but,  hold  on,  what  sort  of 
competition  do  you  mean?" 

The  man  who  says  he  believes  in  competition  ninety- 
nine  times  out  of  a  hundred  has  in  mind  the  rivalry  of 
those  who  are  trying  to  sell  him  goods — he  thinks  that  is 
a  good  thing. 

The  man  who  says  he  does  not  believe  in  competition  has 
quite  another  sort  of  competition  in  mind  and  ninety-nine 
times  out  of  a  hundred  it  is  his  own  rivalry  with  others  in 
the  same  business  to  sell  goods — he  would  very  much  like 
to  modify  or  suppress  that  competition. 

One  does  not  have  to  go  far  afield  for  illustrations  of 
the  results  of  competition  in  the  world  of  labor,  trade,  and 
industry  to  prove  that,  so  far  from  being  a  good  thing — 
much  less  a  sacred  thing — it  is  as  disastrous  to  the  material 
advancement  of  the  community  as  war,  and  disastrous  in 
very  much  the  same  manner — in  appalling  waste  of  time, 
effort,  money,  and  life,  for  competition  is  war,  and  "war 
is  hell,"  as  General  Sherman  said. 

The  thoroughgoing  evolutionist,  the  hero-worshipper, 
the  believer  in  the  superman,  will  argue  that  war  has  made 
man  what  he  is  and  reason  to  the  conclusion  that  humanity 
must  be  left  free  to  "fight  it  out." 

To  that  argument  and  that  conclusion  there  is  no  ade- 
quate answer,  since  no  man  can  say  what  the  world  would 
be  to-day  if  there  had  been  no  wars,  no  struggles,  no  fierce 


24  THE  NEW  COMPETITION 

competitions  resulting  in  the  elimination  of  the  weak;  but 
one  thing  is  certain,  that,  while  there  are  and  will  be  for 
generations — possibly  forever — wars  and  struggles,  and 
fierce  competitions  in  which  no  mercy  is  shown,  the  intel- 
ligence and  better  impulses  of  mankind  are  opposed;  the 
peoples  of  the  earth  may  fight,  but  they  do  not  believe  in 
fighting. 

IV 

The  foundation  of  society  is  not  competition,  but  co- 
operation. 

The  family  is  a  cooperative  unit.  Cain  and  Abel  com- 
peted over  their  offerings  and  their  rivalry  resulted  in  mur- 
der. To-day  the  hand  of  brother  is  raised  against  brother 
as  the  result  of  fierce  struggles  for  wages,  place,  position, 
power — the  slugger  and  the  dynamiter  are  Cain's  succes- 
sors. 

The  tribe,  the  village,  the  state,  the  nation,  are  all  stages 
of  cooperation,  and  the  perfection  of  each  depends  upon 
the  effectiveness  of  the  cooperation. 

Not  until  the  thirteen  colonies  were  willing  to  sink,  in  a 
large  measure,  their  jealousies  and  cooperate  was  it  pos- 
sible to  form  this  Republic,  and  the  very  term  ''United" 
States  signifies  the  cooperative  basis  of  our  national  ex- 
istence. 

The  competition  between  the  North  and  South  cul- 
minated in  attempted  secession — an  assertion  of  individual- 
ism— and  a  war  that  cost  the  lives  of  nearly  a  million  men 
to  reestablish  federal  cooperation  on  a  lasting  basis. 

Without  cooperation  progress,  life  itself,  is  impossible. 
It  is  a  law  of  brute  nature  that  animals  cooperate  for  a  time 
to  feed  and  protect  their  young.  Only  in  the  very  lowest 
forms  of  life  is  this  cooperation  lacking;  the  higher  the 
form  the  greater  the  cooperation  necessary  if  the  species  is 


COMPETITION    IS   WAR  25 

to  be  preserved.  In  the  case  of  man  the  cooperation  of 
parents  is  supplemented  by  that  of  the  tribe,  the  community, 
the  state,  and,  in  the  better  days  to  come,  the  woefully  im- 
perfect present  cooperation  of  the  state  will  develop  into  an 
intelligent  and  far-seeing  interest  compared  with  which  that 
of  the  parent  to-day  is  ignorant  and  inefficient. 

In  the  world  of  trade  and  industry  success  is  the  result 
of  cooperation.  Division  of  labor  is  cooperation.  The 
vital  condition  that  each  man  may  devote  himself  to  the 
pursuit  for  which  he  is  best  fitted  depends  upon  coopera- 
tion; 

Cooperation  is  interdependence,  a  sacrifice,  and,  at  the 
same  time,  a  gain  of  independence. 

The  farmer  depends  upon  the  manufacturer  for  his 
goods,  the  manufacturer  upon  the  farmer  for  his  food,  but 
this  very  dependence  leads  to  larger  individual  independ- 
ence, to  broader  opportunities  for  individual  development. 
If  each  man  were  obliged  to  produce  all  he  needs  the  world 
would  be  in  a  condition  lower  than  that  of  the  lowest  known 
savages,  for  with  even  them  there  is  some  division  of  labor, 
some  cooperation. 

The  history  of  every  people  of  every  nation  has  been  / 
the  history  of  the  rise  and  fall  of  cooperation.     The  history 
of  every  industry  has  been  a  story  of  the  rise  and  fall  of 
cooperation. 

Every  partnership,  every  association,  every  corporation, 
every  trust  is  cooperation — for  what?  To  produce  results, 
to  get  larger  returns  for  time  and  money  ^pent. 

Whether  this  form  or  that  form  of  cooperation  is  right 
or  wrong  is  not  here  under  discussion ;  only  the  effect  of  co- 
operation as  distinguished  from  competition. 

The  terms  as  heretofore  used  are  diametrically  opposed. 
It  is  the  purpose  of  this  book  to  show  wherein  the  New 
Competition  is  a  highly  developed  form  of  cooperation,  but 
the  New  Competition  has  little  in  common  with  the  old. 


26  THE  NEW  COMPETITION 

So  far  from  promoting  progress,  competition  stays  and 
hinders;  it  generates  the  bitterness,  the  jealousy,  the  dis- 
trust that  disintegrate  families,  partnerships,  classes,  states, 
and  nations. 

Competition  is  progress  only  in  the  sense  that  the  war  of 
the  Rebellion  was  progress,  in  that  it  resulted  in  a  stronger 
cooperative  commonwealth;  a  result  that  intelligent  men 
should  have  achieved  by  peaceful  means. 

Rightfully  viewed,  there  is  not  a  single  good  result  ac- 
complished by  man  in  politics  or  economics  commonly  at- 
tributed to  wars,  struggles,  competitions,  that  should  not  be 
attained  by  intelligent  and  far-sighted  cooperation. 

That  it  should  be  argued  that  the  lives  of  a  million 
men,  the  tears  of  more  than  a  million  widows  and  chil- 
dren were  necessary  to  more  firmly  cement  together  the 
states  of  this  union  is  a  lamentable  confession  of  human  in- 
competency. 

The  argument  that  it  is  necessary  for  countless  numbers 
of  men,  women,  and  children  to  freeze,  starve,  suffer  an- 
nually in  order  that  competitive  conditions  in  the  labor  and 
industrial  world  may  be  maintained  and  society  profit  by 
their  misery,  is  again  a  lamentable  confession  of  human  in- 
competency, 

The  proposition  that  thousands  of  merchants  and  man- 
ufacturers, of  builders  and  contractors  must  be  encouraged 
to  ruin  each  other  in  order  that  the  community  may  get 
goods  at  less  than  cost  is  another  lamentable  confession  of 
human  incompetency. 

The  blind  worship  of  competition  is  the  root  of  all  these 
errors. 


COMPETITION    IS   WAR  27 


The  benefits  of  competition  have  been  classed  as  fol- 
lows ^ : 

i.v    '^As  the  regulator  of  prices,  this  is  the  one  on  which 
the  greatest  stress  has  been  laid  in  the  past." 

2.  ''As  a  stimulus  to  productive  eiHciency  and  espe- 

cially to  the  introduction  of  new  methods/' 

3,  ''As  a  means  of  educating  the  community  in  rational 

egoism,  teaching  its  members  that  they  must  seek 
their  industrial  success,  not  in  giving  as  little  as 
possible  to  those  with  whom  they  deal,  but  as 
much  as  possible/' 

As  a  matter  of  fact,  competition  leads  to  precisely  con- 
trary results,  and  the  fiercer  the  competition  the  more 
disastrous  the  outcome. 

I.  Cooperation,  whether  voluntary  or  involuntary — 
compelled  by  law — is  the  only  regulator  of  prices.  Com- 
petition, free  and  unfettered,  is  absolutely  destructive  to  all 
stability  of  prices.  Before  the  Interstate  Commerce  Law, 
regulating  railway  rates,  competition  reigned  and  rates 
varied  arbitrarily  from  day  to  day,  from  person  to  person, 
from  place  to  place,  with  countless  rebates  and  secret  fa- 
vors; to  a  certain  extent  the  railroads,  from  time  to  time, 
cooperated  to  control  conditions  by  pools  and  associations, 
but  not  until  the  Government  stepped  in  and  called  a  halt  to 
vicious  competition  were  rates  regulated  in  any  permanent 
manner. 

The  proposition  is  too  simple  to  call  for  demonstration 
since  every  man  knows  that  it  is  the  appearance  of  a  com- 
petitor that  causes  prices  and  wages  to  drop,  and  every 

*By  President  Hadley,  in  the  article  referred  to. 


28  THE  NEW  COMPETITION 

labor-unionist,  and  every  small  manufacturer  know  that 
where  cooperation  is  effective  wages  and  prices  are  more 
constant. 

The  very  theory  of  our  anti-trust  laws  is  that  they  sup- 
press  cooperation,  and,  by  encouraging  competition,  pro- 
mote the  widest  possible  fluctuations  in  prices — for  the  sup- 
posed benefit  of  the  consumer  who  is — the  law  forgets — first 
of  all  a  producer. 

2.  This  error  is  more  firmly  grounded.  If  competi- 
tion is  a  disintegrating  and  wasteful  force  then  it  cannot 
possibly  be  "a  stimulus  to  productive  efficiency,"  and  it  is 
not.  Its  effect  is  altogether  disheartening  and  discouraging. 
It  may  seemingly  result  in  introduction  of  new  methods  and 
new  inventions,  but  progress  in  these  directions  is  due  to 
broader  influences. 

The  great  inventions  of  the  world  were  not  due  to  com- 
petitive conditions — competition  had  no  more  influence  on 
Watts  than  on  Newton.  Bell's  interest  in  the  telephone  was 
primarily  scientific.  Few  inventions  have  been  so  perfect 
at  the  outset  that  competitors  could  at  once  make  use  of 
them.  On  the  contrary,  it  has  usually  required  long  co- 
operation of  labor  and  capital,  in  the  face  of  jeering  op- 
position, to  bring  an  invention  to  practical  perfection. 

It  is  true  artificial  monopolies  resting  upon  grants  from 
the  crown  or  state  have  been  notoriously  indifferent  to  ad- 
vancement, but  not  so  with  monopolies  resting  upon  the 
ability  of  men  to  hold  trade;  they  are  as  quick  to  develop 
improved  methods  as  if  they  had  many  competitors. 

The  Standard  Oil  Company  was  charged  with  having 
b^en  for  a  generation  or  more  a  monopoly,  yet  no  one  would 
claim  its  methods  were  not  up  to  date — the  actual  complaint 
is  that  its  methods  were  a  little  too  advanced  to  admit  of 
competition.  As  a  producer  and  distributor  of  oil  that  com- 
pany has  led  the  world. 

The  United  States  Steel  Corporation  is  charged  with 


COMPETITION    IS   WAR  29 

being  a  monopoly/  and  beyond  the  reach  of  competition,  yet 
no  independent  steel  man  would  assert  for  a  moment  that 
the  Corporation  is  indifferent  to  new  methods  and  processes 
— in  the  scientific  application  of  recent  discoveries  it  is  a 
pioneer,  its  experiments  are  being  watched  with  interest. 

It  takes  capital,  strength,  courage  to  try  new  inventions, 
new  methods,  and  competition  exhausts  a  man's  capital  and 
saps  his  courage. 

While  the  old  competition  accomplishes  none  of  the 
good  results  attributed  to  it,  the  cooperation  at  the  basis  of 
the  new  does. 

3.  Competition  does  not  educate  the  community  in 
"rational  egoism,"  but,  on  the  contrary,  develops  an  irra- 
tional and  belligerent  individualism — ending  in  artificial 
combinations  and  consolidations. 

It  does  not  teach  that  the  basis  of  industrial  success  is 
the  giving  as  much  as  possible,  but,  on  the  contrary,  the 
fundamental  proposition  of  competition  is  to  give  as  little 
and  get  as  much  as  possible.  Competition  is  the  most  pow- 
erful incentive  to  selfishness  known  to  man — it  is  selfish- 
ness. 

"Rational  egoism,"  altruism,  unselfishness,  generosity, 
have  their  foundation  in  cooperation. 

Cooperation  is  essentially  constructive;  competition  de- 
structive. 

Even  war  is  a  conflict  between  forces,  the  strength  of 
each  of  which  depends  upon  the  degree  of  cooperation — of 
unity — attained,  and  it  is  easily  discernible  from  the  most 
casual  survey  of  history  that  whatever  of  good  comes  out 
of  war  depends  upon  the  extent  to  which  the  successful 
side  is  more  closely  knit  together  by  the  force  of  the  con- 
flict. 

*  As  a  matter  of  fact,  the  two  companies  referred  to  were  "monopo- 
lies" only  in  the  sense  that  they  dominated  their  respective  industries; 
aside  from  patent,  natural,  and  public-service  monopolies  few  real 
monopolies  exist  in  this  country. 


30  THE  NEW  COMPETITION 

All  there  is  of  good  in  competition  is  its  tendency  to  re- 
sult in  closer  cooperation,  greater  harmony,  closer  and  finer 
relations  between  the,  for  a  time,  conflicting  units.  ^ 

Disintegration  leads  to  integration — if  not  the  world 
would  have  been  doomed  long  ago. 

Integration  attains  a  certain  degree  of  perfection  and 
again  disintegrates,  but  each  ebb  and  flow  must  mark  a  new 
high  level  in  human  achievement,  else  there  is  no  real 
progress. 

VI 

A  right  understanding  of  what  competition  is  in  the 
world  of  trade  and  industry  is  so  important  that  we  will 
give  a  few  instances,  each  of  which  is  typical  of  a  large 
class. 

In  the  labor  world  a  small  town  is  dependent  upon  a 
large  factory,  it  has  grown  up  with  the  factory,  it  is  pros- 
perous because  the  industry  is  prosperous.  One  of  two 
things  happens :  ( i )  The  owners  of  the  factory  see  an 
opportunity  to  increase  profits  by  bringing  in  cheaper  labor ; 
or  (2)  the  men  employed  ask  for  better  wages  and  the 
owners  meet  the  demand  by  threatening  to  employ  or  actu- 
ally employing  cheaper  labor  from  other  places. 

The  foregoing  is  a  bald  outline  of  a  situation  that  often 
prevails  where  there  is  a  controversy  between  employers 
and  employees  regarding  wages  and  terms  of  employment. 
The  strength  of  the  employer  lies  in  the  struggle — the  com- 
petition— of  men  for  employment;  the  weakness  of  the  em- 
ployees who  have  grown  up  with  the  factory,  who  own  their 
homes,  lies  in  this  competitive  condition  which  imperils  not 
only  their  places  but  their  savings. 


COMPETITION    IS   WAR  31 


VII 


Formerly  mines,  factories — employers  generally — could 
import  labor  from  abroad;  competition  was  world-wide. 
The  law  now  forbids  that  sort  of  competition.  Many 
state  laws  go  farther  and,  by  ingeniously  devised  restricr 
tions,  seek  to  make  it  difficult  for  employers  to  bring  in 
"strike  breakers" — i.  e.,  competing  labor — and,  if  brought 
in,  make  it  difficult  to  adequately  protect  the  new  comers. 

So  much  for  "competition"  in  the  labor  world ;  it  is  not 
looked  upon  as  the  good  thing  it  is  supposed  to  be,  and 
labor  unions  are  doing  all  they  can  to  absolutely  control  it; 
their  methods  may  be  crude  and  brutal,  but  they  are  strug- 
gling with  a  crude  and  brutal  competitive  condition. 

Near  one  of  the  principal  hotels  in  New  York  there  was 
for  years  a  small  and  well-managed  drug  store.  In  a  quiet 
way  it  did  a  very  good  business.  One  day  two  stores  next 
to  it  were  rented  and  in  a  few  weeks  merged  into  a  glass 
and  marble  "palace"  that  sold  drugs  at  "cut  rates"  and 
nearly  everything  else  that  would  attract  custom.  The  em- 
ployees of  the  small  store  were  all  men  except  the  cashier; 
the  employees  of  the  large  are  mostly  boys  and  girls. 

The  inevitable  result  was  the  disappearance  of  the  small, 
it  closed  up;  the  large  is  simply  one  of  a  "chain"  of  "cut 
rate"  drug  stores  operated  by  one  large  company;  against 
such  competition  the  individual  owner,  or  even  the  owner  of 
two  or  three  stores  has  no  chance;  the  appearance  of  the 
big  company  in  a  block  is  a  signal  for  the  small  to  disappear. 

This  is  competition ;  there  is  no  question  about  that.  It 
is  a  very  modern  sort  of  competition.  It  is  typical  of  the 
department  store,  the  mail-order  house,  the  company  with 
branches  here,  there,  and  everywhere — it  is  the  last  word  in 
"gut  rate" — "cut  throat"  competition. 


32  THE  NEW  COMPETITION 

The  bloodless  economist  will  say,  "Let  them  alone,  it  is 
evolution,  the  fittest  will  survive." 

But  that  is  just  the  question,  will  the  fittest  survive? 
The  strongest  may,  but  fittest!    That  is  another  question. 

If  survival  means  the  displacement  of  men  by  women 
and  girls,  and  the  disintegration  of  the  family  into  compet- 
ing units,  if  it  means  a  cheapening  of  quality  all  around, 
above  all  a  cheapening  of  the  atmosphere,  if  it  means  loss 
of  personal  interest  and  personal  touch,  then  it  may  not  be 
the  fittest  for  the  betterment  of  either  those  directly  inter- 
ested or  of  the  community  as  a  whole. 


VIII 


Some  years  ago  there  was  an  old  and  long  established 
company  in  England  the  products  of  which  were  standard 
the  world  over. 

A  powerful  American  company  wished  to  buy  the  Eng- 
lish company  and  control  the  business  in  Great  Britain. 
The  English  company  had  no  desire  to  sell  and  refused  all 
offers. 

The  American  company,  to  force  a  sale,  established  a 
factory  in  England,  flooded  the  country  with  an  inferior 
and  cheaper  product,  demoralizing  the  trade.  In  the  end 
the  English  company  was  forced  to  sell. 

That  was  good  old-fashioned  competition.  The  prac- 
tice is  common;  it  is  common  in  the  small  town  where  the 
large  dealer  cuts  prices  to  force  a  small  to  either  sell  out  or 
get  out.  It  is  done  in  the  world  of  "big  business"  when  the 
large  corporation  deliberately  invades  the  territory  of  the 
small  and,  by  selling  below  cost,  compels  the  latter  to  dis- 
pose of  its  business.  In  fact,  it  is  part  of  the  every-day 
tactics  of  the  old  competition. 

"And  why  not?"  some  one  cynically  asks.    "Doesn't  the 


COMPETITION    IS   WAR  33 

public  reap  the  benefit  in  the  way  of  low  prices  while  the 
war  is  on?" 

"Yes,  but " 

What  is  the  use  of  arguing  with  a  man  who  thinks 
that  competition  of  that  character  is  beneficial  ? 


IX 

Then  there  is  the  disreputable  competition  of  those  who 
sell  out  and  immediately  go  into  business  again  in  opposi- 
tion to  purchasers  who  buy  in  good  faith. 

The  law  permits  the  purchaser  to  take  a  limited  contract 
restraining  the  seller  from  immediately  competing,  but, 
aside  from  such  contracts,  and  often  in  evasion  of  them,  men 
who  sell  their  establishments  with  good-will  take  the  money 
they  receive  and  open  up  in  the  same  town,  the  same  block, 
to  get  the  very  trade  they  sold. 

This  is  dishonorable  but — competition,  and  the  com- 
munity is  supposed  to  benefit  economically  from  a  condi- 
tion that  is  morally  bad — does  it  ? 


X 

The  great  mass  of  mankind  are  both  sellers  and  buyers. 

As  sellers  they  would  stifle  competition;  as  buyers  they 
would  foster  it. 

Unhappily,  they  actually  try  to  do  both.  The  farmer 
demands  freedom  to  organize  his  cooperative  societies,  but, 
in  the  same  breath,  demands  laws  to  prevent  other  classes 
doing  the  same  thing. 

The  laborer  insists  upon  his  right  to  organize  unions 
and  dictate  wages,  and,  in  the  same  breath,  calls  for  the 
enforcement  of  the  law  against  the  organization  of  em- 
ployers. 


34  THE  NEW  COMPETITION 

The  dealer  and  manufacturer  is  caught  between  the  up- 
per and  nether  millstones — he  is  obliged  to  pay  prices  fixed 
by  farmers'  organizations  and  wages  fixed  by  labor  unions,] 
but  cannot — under  the  laws  of  most  of  the  states — organize 
with  others  for  his  own  benefit. 

This  is  a  condition  so  manifestly  unfair  and  illogical  it 
cannot  exist  for  long,  and  while  it  does  exist  it  engenders 
mischief  and  class  hatred. 

The  problem  presented  is  by  no  means  peculiar  to  this 
country,  for  the  nations  of  Europe  are  struggling  with  it, 
but  the  condition  is  more  acute  here  because  we  have  forty- 
eight  states  and  a  federal  government  passing  laws  on  the 
subject,  and  for  nearly  a  generation  passing  laws — "anti- 
trust laws" — drawn  in  most  drastic  terms  to  suppress  co- 
operation and  promote  competition. 


XI 


The  Sherman  Act  was  passed  1890. 

Since  its  enactment  many  suits  have  been  begun  to  dis- 
solve "trusts" — combinations  of  dealers  and  manufacturers. 

Not  a  single  suit  has  been  begun  to  dissolve  any  onci 
of  the  large  combinations  of  labor  or  of  farmers,  thoughJ 
the  existence  of  such  combinations  arbitrarily  controlling 
inter-state  commerce  is  a  matter  of  common  knowledge.^ 

What  is  the  net  result  of  the  enforcement  of  that  law? 

A  few  "trusts"  and  a  number  of  lesser  combinations 
have  dissolved,  but  where  one  has  been  suppressed  five 
hundred  have  taken  its  place.  No  such  era  of  combination 
and  cooperative  organization  has  ever  been  known  in  the 
history  of  the  world  as  the  period  of  twenty-odd  years  since 
the  passage  of  the  Sherman  act. 

This  movement  has  not  been  organized  in  "defiance"  of 
iSee  Chapter  XIX. 


COMPETITION    IS   WAR  35 

the  law,  but  in  response  to  irresistible  forces — ^the  same 
forces  that  brought  the  partnership,  the  corporation,  the  la- 
bor union,  into  existence;  the  forces  that  compel  men  to 
work  together  in  harmony  to  accomplish  the  things  mod- 
ern society  demands  of  them. 

Just  as  the  stage-coach,  owned  and  driven  by  one  man, 
has  given  way  to  the  railroad,  owned  and  operated  by  a 
hundred  thousand  men,  so  the  individual  laborer,  farmer, 
merchant,  small  manufacturer,  merges  his  identity  in  that  of 
his  union,  his  cooperative  society,  his  large  corporation,  his 
"trust,''  to  secure  larger  results,  to  do  things  on  a  larger 
scale,  a  scale  commensurate  with  the  marvelous  develop- 
ment of  the  world  of  to-day. 


XII 


The  country  has  reached  the  parting  of  the  ways.  It 
must  make  its  choice,  and  make  it  intelligently — either  the 
competitive  or  the  cooperative  basis.  If  the  competitive, 
then  no  class  should  be  permitted  to  organize  a  cooperative 
movement  to  get  more  for  what  it  has  to  sell;  if  the  co- 
operative basis,  then  no  class  should  be  prevented  from  or- 
ganizing— either  one  policy  or  the  other,  the  two  cannot 
exist  together. 

The  man  who  argues  for  competition  must  be  consist- 
ent; he  must  argue  against  farmers'  cooperative  societies 
and  labor  unions  just  as  vehemently  as  he  argues  against 
combinations  of  dealers  and  manufacturers. 


XIII 


We  are  in  course  of  making  this  choice ;  Congress  is  de- 
bating constructive  legislation  to  supplement  or  take  the 


36  THE  NEW  COMPETITION 

place  of  the  Sherman  law,  which  is  purely  destructive'  in  its 
intent. 

But,  judging  from  the  debates  in  Congress  and  its  com- 
mittees, this  new  legislation  is  not  being  considered  in  the 
spirit  it  should  be.  Many  of  the  bills  offered  are  directed 
against  cooperation.  There  is  still  a  belated  cry  for  a 
more  drastic  "anti-trust"  remedy,  for  a  law  that  will  purge 
the  country  of  all  combinations — all  combinations  except 
combinations  of  farmers  and  combinations  of  labor — no 
statesman  proposes  to  frame  a  law  that  will  interfere  with 
them. 

But  while  many  of  our  law-makers  refuse  to  see  condi- 
tions as  they  are,  that  is  by  no  means  true  of  all,  and  cer- 
tain it  is  that  as  time  goes  by  the  conviction  gains  ground 
in  Washington  that  the  country  is  passing  slowly  but  surely 
from  the  old  competitive  basis  to  the  cooperative,  and  what 
is  needed  are  not  futile  laws  directed  against  cooperation, 
but  more  legislation  in  aid  of  the  new  spirit  that  is  abroad 
in  the  land,  legislation  that  will  help  men  to  come  together 
and  work  together,  securing  for  the  public  the  maximum  of 
good  from  cooperation,  and,  at  the  same  time,  protecting 
the  people  and  all  classes  from  abuse  of  power  by  combina- 
tions. 

Many  additional  illustrations  of  unfair,  oppressive,  and 
disastrous  competition  are  given  in  the  following  chapters, 
but  no  reader  need  go  beyond  his  own  experience  and  obser- 
vation for  facts. 

The  farmer  knows  that  competition  means  lower  prices 
for  his  produce,  and  so  all  over  this  country  farmers  are  or- 
ganizing cooperative  societies,^  to  enable  them  to  sell  what 

*In  addition  to  the  many  farmers*  cooperative  associations  enume- 
rated in  Chapter  XIX,  the  following  just  at  hand  is  in  point:  "Ken- 
tucky farmers  are  preparing  to  organize  a  farmers'  union  covering  the 
entire  state,  and  to  establish  a  central  store  in  every  county  seat.  To 
date  this  union  has  been  organized  in  only  a  few  counties.  Wherever 
the  cooperated  stores  have  been  established  they  have  given  satis- 
factioix 


COMPETITION    IS   WAR  37 

they  have  to  sell  for  more  money,  to  get  larger  and  surer 
returns. 

The  laborer  knows  that  competition  means  lower  wages, 
therefore  he  joins  a  union  to  suppress  competition  and  ad- 
vance wages. 

The  merchant  and  manufacturer  know  that  competition 
means  "cut-throat"  prices  for  what  they  have  to  sell,  hence 
they,  too,  try  to  form  cooperative  organizations  to  lessen 
competition ;  but  the  law  is  not  so  indulgent  to  them,  it  tries 
to  prevent  their  doing  what  farmers  and  laborers  do. 

The  only  class  in  the  community  that  profits  from  unre- 
stricted competition  is  the  class  that  has  nothing  to  sell, 
people  who  live  on  fixed  incomes;  their  interest  is  in  low 
prices.  If  they  can  buy  what  they  want  below  cost  they  are 
happy,  even  though  their  advantage  means  ruination  to  the 
farmer,  the  laborer,  the  dealer,  the  manufacturer.  But  this 
class  is  small  in  numbers  and  importance  as  compared  with 
the  rest  of  the  community,  and  not  a  few  would  have  diffi- 
culty in  justifying  their  right  to  be  non-producers  in  any 
fair  theory  of  social  organization. 

"Solicitors  for  members  are  constantly  at  work,  and  by  the  time 
the  tobacco,  wheat,  and  corn  crops  are  ready  for  harvest,  many  more 
counties,  it  is  expected,  will  take  up  the  plan. 

"A  meeting  held  in  Lexington  was  attended  by  leading  farmers  of 
different  parts  of  the  state.  Many  of  these  were  members  of  the  old 
American  Society  of  Equity,  established  several  years  ago  to  force 
higher  prices  for  tobacco  and  other  farm  products  from  trusts,  which 
then  controlled  these  products. 

"From  the  agitation  started  by  the  American  Society  of  Equity 
came  the  Burley  Tobacco  Society,  which  now  controls  the  production 
of  more  than  200,000,000  pounds  of  tobacco  annually  in  Kentucky,  Ohio, 
Indiana,  and  West  Virginia." 

Another  instance  from  Illinois: 

"Farmers  of  Cumberland  and  Cole  counties  signed  an  agreement 
to-day  pledging  themselves  not  to  raise  broom-corn  for  five  years  unless 
the  dealers  will  guarantee  them  a  price  to  exceed  $120  a  ton  in  advance 
of  planting.  For  twenty  years  the  two  counties  have  been  the  broom- 
corn  center  of  the  country." 

President  Taft  recently  advised  consumers  to  form  cooperative 
societies,  after  the  English  type,  to  eliminate  the  profits  of  exchange 
by  buying  direct  from  producers.  And  Colonel  Roosevelt,  speakinjj  to 
Minnesota  farmers,  has  advised  them  to  form  cooperative  societies  to 
eliminate  the  intermediate  dealers  and  sell  direct  to  the  consumers. 


CHAPTER  IV 
GROWTH  OF  COOPERATION 


Every  railroad,  every  telegraph,  every  telephone, 
means  cooperation,  and  cooperation  means  combination  in 
one  form  or  another. 

Before  the  railroad  merchants  in  towns  fifty  miles  apart 
did  not  compete  with  one  another;  each  could  charge  prac- 
tically what  he  pleased;  prices  could  vary  fifty  or  a  hun- 
dred per  cent,  without  affecting  trade  appreciably. 

A  low  man  might  draw  trade  from  territory  within,  say, 
twenty  or  even  fifteen  miles  of  the  other  town,  depending 
upon  condition  of  the  roads,  season  of  the  year,  etc.,  but 
the  high  man  in  the  second  town  would  have  customers  the 
other  could  not  reach,  customers  who  could  not  afford  to  go 
the  extra  distance  to  make  the  saving  in  price. 

A  railroad  between  the  towns  changes  their  economic  re- 
lations; now  a  very  slight  difference  in  prices  draws  trade 
one  way  or  the  other. 

Theoretically,  and,  in  large  measure,  practically,  the 
measure  of  the  opportunity  of  the  merchant  in  one  town  to 
charge  more  than  a  merchant  in  another  for  like  goods,  is 
measured  by  the  fare  to  and  fro  between  the  towns,  plus 
the  element  of  loss  of  time. 

When  an  electric  line  is  built,  running  cars  every  half 
hour  and  carrying  passengers  at  nominal  rates,  the  two 

38 


GROWTH  OF  COOPERATION  39 

towns,  so  far  as  prices  and  competition  are  concerned,  vir- 
tually coalesce. 

As  a  matter  of  fact,  smaller  towns  within  twenty-five  or 
fifty  miles  of  large  cities  are  placed  in  positions  of  great 
disadvantage  by  the  rapid  spread  of  electric  car  lines;  they 
are  made  suburbs,  and  trade  is  seriously  affected. 

Cities  attract  trade  with  a  force  far  beyond  the  eco- 
nomic advantages  offered.  Men  and,  especially,  women 
like  to  do  their  shopping  in  the  larger  places,  even  though 
they  lose  car  fare  and  time  by  doing  so,  and  pay  as  much  as 
their  local  merchants  ask  for  the  same  goods.^ 

Railroads  were  slow  in  building  compared  with  the 
phenomenally  rapid  spread  of  electric  lines  incident  to  the 
development  of  the  trolley.  The  latter  are  so  easily  and  in- 
expensively constructed  they  have  spread  everywhere  within 
a  few  years;  they  and  the  telephone,  with  rural  postal  de- 
livery, have  brought  the  farmer  into  the  city,  until  it  is  now 
as  easy  for  the  farmer's  wife  to  do  her  shopping  and 
marketing  as  it  was  for  the  townsman's  wife  a  generation 
ago. 

The  parcel  post  will  still  further  annihilate  distance;  it 
will  place  the  department  store  and  the  big  mail  order 
house  five  hundred  or  a  thousand  miles  away  on  a  footing  of 
equality  vath  both  the  country  and  the  city  merchant;  it 
will  intensify  competition  by  bringing  in  new  and  powerful 
factors. 

The  country  merchant  sees  this,  he  reads  the  handwrit- 
ing on  the  wall,  and  he  joins  hands  with  the  express  com- 
panies in  opposing  the  parcel  post.  He  is  willing  it  should 
be  tried  on  rural  deliveries  because  that  means  he  will  be 
able  to  get  his  parcels  delivered  to  his  customers  at  a 
nominal  cost  while  the  city  house  will  be  excluded. 

*  "Not  long  ago  the  merchants  of  a  Wisconsin  city  made  vigorous 
protests  against  the  low  passenger  charges  to  Chicago,  in  order  to  keep 
the  people  in  the  city  from  going  to  Chicago  to  purchase  supplies." — 
Prof.  R.  T.  Ely,  "Evolution  of  Industrial  Society,"  pp.  249-250. 


40  THE  NEW  COMPETITION 

But  the  parcel  post  is  at  hand  and  it  will  affect  local 
trade  very  much  as  the  railroads  affected  it  years  ago,  very 
much  as  the  trolleys  have  affected  it  in  times  more  recent — 
in  short,  precisely  as  every  cheapening  of  transportation  is 
bound  to  affect  trade,  by  widening  the  competitive  area. 

II 

There  are  two  ways  in  which  the  competition  of  a  given 
dealer  or  manufacturer  may  be  increased: 

(a)  By  the  establishment  of  a  rival  in  the  locality — 
the  intensive  way:  (b)  by  the  widening  of  the  area  of  com- 
petition by  improvement  in  facilities  for  communication 
and  transportation— the  extensive  way. 

So  far  as  the  local  merchant  is  concerned  one  may  be 
as  disastrous  as  the  other,  since  both  mean  division  of  trade. 

So  far  as  the  community  is  concerned  the  effects  are 
different.  In  the  first  case  a  new  shop  is  added  to  the  sum 
total  of  all  in  existence  (unless  it  has  been  moved  from  some 
other  place)  ;  in  the  second  case  no  new  capital  is  invested 
or  labor  employed,  save  as  some  additional  may  be  required 
by  the  larger  establishments  to  take  care  of  the  trade  ab- 
sorbed from  the  smaller. 

In  times  past  it  was  competition  of  the  intensive  sort 
that  men  feared  and  resented.  The  local  carpenter,  brick- 
layer, blacksmith,  miller,  merchant,  fought  the  newcomer  as 
an  intruder. 

The  medieval  guilds  were  organized  in  large  part  to 
protect  localities  against  intensive  competition — competition 
within  the  gates.  The  modern  labor  union,  with  its  re- 
strictions regarding  apprentices,  its  opposition  to  immigra- 
tion, and  its  arbitrary  requirement  that  unionists  from  other 
places  must  take  out  local  cards— if  they  can — fights  inten- 
sive competition,  the  intrusion  of  the  stranger. 

Formerly  extensive  competition — the  competition  of  dis- 
tant localities — was  a  negligible  quantity,  made  so  by  dif- 


GROWTH  OF  COOPERATION  41 

ficulties  in  communication  and  transportation,  by  tariffs, 
taxes,  brigandage,  etc.,  etc.  Nowadays  it  is  the  extensive 
competition,  the  competition  of  city  with  city,  state  with 
state,  country  with  country,  that  is  affecting  prices  and 
wages.  And  it  is  this  competition  that  must  be  dealt  with 
in  a  big  way  and  a  broad  way.  It  cannot  be  suppressed,  it 
cannot  be  checked,  unless  mankind  wishes  to  suppress 
steam,  gasoline,  and  electricity — ^but  it  may  be  controlled 
and  transformed. 

Ill 

The  history  of  nations  shows  how  the  pendulum  of 
progress  swings  to  and  fro  from  perfection  in  little  things 
to  perfection  in  big  things.  At  the  same  period  one  nation 
may  be  doing  things  intensively,  while  another  is  doing 
things  in  a  spirit  of  extension;  one  may  be  living  a  life  of 
extraordinary  fullness  within  its  gates,  another  may  find 
satisfaction  only  in  conquering  the  earth. 

Again  at  different  periods  the  ambitions  of  mankind 
are  widely  different.  For  a  time  the  nations  are  content 
within  their  borders,  are  absorbed  in  building  their  cities, 
their  cathedrals,  their  monuments — in  artistic  and  intellec- 
tual pursuits ;  the  conflicts  are  few  and  personal  or  local  in 
character;  there  is  an  astonishing  development  of  every 
trade,  every  craft.  Suddenly  there  comes  a  change,  due, 
perhaps,  to  some  great  invention  or  discovery,  or,  perhaps, 
to  the  restless  personality  of  some  mighty  leader  who  re- 
flects the  spirit  of  hia  times.  The  period  of  intense  develop- 
ment is  at  an  end ;  as  if  moved  by  one  impulse  the  nations 
embark  on  a  period  of  conquest,  of  discovery,  of  coloniza- 
tion; a  period  wherein  local  barriers  are  annihilated  and 
countries  come  together  in  one  grand  clash,  one  supreme 
struggle  either  on  the  field  of  battle  or  in  the  more  bloodless 
but  none  the  less  fierce  rivalry  for  commercial  and  indus- 
trial victories. 


42  THE  NEW  COMPETITION 

We  are  in  the  midst  of  one  of  those  great  movements, 
one  of  those  world-wide  conflicts.  It  is  so  fierce  that  again 
and  again  are  nations  on  the  verge  of  declaring  war  for  no 
reason  whatsoever  except  trade  jealousy.  Projects  of  ter- 
ritorial expansion  are  justified  by  commercial  reasons. 
Controversies  concerning  this  country  or  that,  over  China, 
Persia,  Turkey,  are  in  substance,  if  not  in  form,  trade  con- 
troversies. 

The  world  has  gone  mad  over  trade  and  the  problems 
of  trade.  Financiers  and  diplomats  exhaust  their  energies 
trying  to  devise  new  schemes,  new  treaties,  new  tariffs 
whereby  one  nation  can  sell  the  world  more  than  it  buys, 
whereby  the  "balance  of  trade"  can  be  turned  hither  and 
thither  at  the  will  of  man — this  is  the  era  of  "dollar  diplo- 
macy.*' 

The  conquests  of  Alexander,  of  Oesar,  of  Napoleon, 
were  as  nothing  compared  with  the  struggle  that  is  now  on 
for  trade  supremacy — a.  struggle  that  is  made  fiercer  from 
year  to  year  by  marvelous  inventions  and  developments  in 
means  of  communication  and  transportation.  Peoples, 
heretofore  safe  in  their  isolation,  are  swept  into  the  mael- 
strom— the  globe  is  a  sizzling  unit.^ 

IV 

Intense  competition  makes  for  quality,  extense  for  quan- 
tity. 

At  this  moment  the  cry  is  not  "how  good,"  but  "how 
much."  In  the  mad  race  for  wealth,  for  gross  production, 
the  beautiful  is  lost  sight  of,  there  is  no  love  or  longing  for 

^  This  forecast  was  written  early  in  1912  when  the  world  seem- 
ingly was  at  peace.  The  prediction  has  been  quickly  realized.  The 
bitterest — and  true — cause  of  the  present  war  is  the  rivalry  of  Ger- 
many and  Great  Britain  for  trade  supremacy.  This  country  has  caught 
the  virulent  fever  and  is  ambitious  to  reach  out  for  the  markets  of 
the  globe.  We,  too,  seek  war,  for  war  will  surely  follow.  Foreign 
trade  is  the  most  dangerous  will-o'-the-wisp  a  nation  can  pursue;  it 
is  the  great  economic  illusion. 


GROWTH  OF  COOPERATION  43 

perfection — it  is  "More,  more,  more — Oh  God,  give  us 
more !" 

With  an  indifference  to  the  morrow  that  is  criminal  the 
earth  is  mined  and  denuded;  future  generations  are  being 
robbed  of  their  patrimony;  minerals,  coal,  iron,  wood,  are 
being  rapidly  exhausted. 

It  is  true  human  ingenuity  has  met  every  emergency  in 
the  past  and  will  probably  suffice  in  the  future;  new  forces, 
new  resources  will  be  discovered,  but  the  surest  relief  from 
the  present  wasteful  extensive  competition  which  demands 
quantity  is  the  return  to  intense  competition  which  is  con- 
tent with  far  less  but  demands  greater  perfection. 

Again,  extense  competition  means  combination  on  a 
large  scale ;  intense  is  the  opportunity  of  the  individual. 

The  effort  to  produce  quantity  leads  inevitably  to  the 
organization  of  industry,  to  the  factory  system,  the  large 
corporation,  the  trust — a  break-neck  pace  in  which  to  halt  is 
to  fall. 

The  effort  to  produce  quality  means  a  reversal  of  these 
steps,  the  disintegration  of  the  factors  of  wholesale  and 
indiscriminate  production  until  the  individual  is  permitted 
to  emerge  and  impress  his  personality  upon  his  work. 

The  change  is  bound  to  come,  and  signs  are  not  wanting 
that  this  country  is  getting  tired  of  the  mere  production  of 
wealth  in  gross.  It  is  demanding  better  things.  It  is  de- 
manding more  sightly  things  in  even  the  most  matter-of- 
fact  industries  and  enterprises.  Take  railroading,  for  in- 
stance ;  the  depots  and  bridges  that  satisfied  everyone  a  gen- 
eration ago  would  not  be  tolerated  in  a  country  town  to- 
day. There  is  an  immense  amount  of  thought  and  labor 
given  to  the  more  artistic  designing  of  all  kinds  of  machin- 
ery. There  is  a  growing  appreciation  of  the  efforts  made 
by  owners  of  factories  to  cultivate  their  grounds  and  build 
their  buildings  so  they  will  please  rather  than  offend  the 
eye. 


44  THE  NEW  COMPETITION 

The  value  of  structures  well  built  and  perfectly  kept,  as 
an  advertisement,  is  being  recognized. 

Compare  the  fronts  and  interior  arrangements  of  the 
shops  of  to-day  with  those  of  a  few  years  ago,  the  ef- 
fort to  make  them  look  better  is  obvious  even  if  the  ef- 
fect is  often  blatant. 

There  is  a  growing  effort  to  make  our  cities  and  towns 
and  all  they  contain  more  beautiful.  This  effort  is  crystal- 
lizing in  the  appointments  of  commissions,  the  organiza- 
tions of  societies  and  public  bodies;  it  finds  expression  in 
laws  and  appropriations;  it  may  make  many  attempts  that 
are  failures;  it  may  produce  ugly  where  beautiful  effects 
were  intended ;  but  the  point  is,  the  cry  for  quality  is  mak- 
ing itself  heard  above  the  din  of  the  demand  for  quantity. 

Beauty  is  not  a  wholesale  proposition;  it  dislikes  the 
partnership;  it  avoids  the  corporation;  it  flees  the  trust. 
It  is  essentially  personal.  When  America  really  demands 
beauty,  demands  it  as  loudly  and  insistently  as  it  now  de- 
mands wealth,  many  of  the  problems  of  to-day  will  find  so- 
lution in  the  changed  conditions,  but,  for  the  present,  we 
have  competition  in  the  most  extensive  form  the  world  has 
ever  known,  and  the  problems  presented  by  that  competi- 
tion must  be  dealt  with;  we  cannot  wait  the  slow  chang- 
ing of  ideals,  the  evils  of  the  hour  must  be  corrected;  all 
that  is  false,  vicious,  unfair,  must  be  eliminated.  The  race 
for  wealth,  for  quantity,  must  be  made  a  fair  race  in  which 
all  will  have  as  nearly  equal  opportunities  as  human  in- 
genuity can  provide. 


As  already  stated,  this  inevitable  tendency  of  competition 
in  the  production  of  quantity  is  combination  of  forces,  of 
strength,  of  capital  and  labor,  in  large  units  to  secure 
greater  results  per  dollar  invested  and  per  man  employed. 


GROWTH  OF  COOPERATION  45 

This  cooperation  takes  the  following  familiar  forms: 

1.  Partnerships — association  of  individuals,  the  sim- 
plest and  most  primitive  form  of  cooperation. 

2.  Corporations — in  reality  only  a  legal  form  of  a 
large  partnership,  the  chief  advantage  of  which  is  the  limit- 
ing of  the  personal  liability  of  the  partners — i.  e.,  the  stock- 
holders. 

3.  ''Trusts"— as  they  are  popularly  called;  they  are 
simply  partnerships  of  partnerships  or  corporations;  con- 
solidations in  one  form  or  another  of  a  number  of  existing 
companies. 

The  three  forms  are  so  many  steps  in  the  evolution  of 
organized  industry,  and  organized  industry  is  absolutely  es- 
sential if  the  maximum  of  quantity  is  to  be  produced  at  a 
minimum  cost. 

Inherently  there  is  no  objection,  economic,  moral,  or 
legal,  to  any  one  of  the  three  forms. 

A  partnership  of  companies — the  trust — is  as  logical  and 
legitimate  a  development  of  corporate  organization  as  is 
the  corporation  from  partnerships  of  individuals. 

The  trusts  do  not  originate  anything  in  novel  and  op- 
pressive competitive  methods;  they  are  rather  backward 
and  clumsy — literally  elephantine — in  their  attempts  to  do 
what  individuals  do.  They  suffer  from  a  multitude  of 
counselors,  and  those  in  control,  however  unscrupulous, 
lack  the  decision,  the  alertness  of  the  equally  unscrupulous 
individual  in  devising  ways  to  promote  his  own  busi- 
ness. 

No  unfair,  oppressive,  or  illegal  practice  has  been 
charged  against  a  corporation  or  a  partnership  that  did 
not  have  its  origin  and  practical  demonstration  in  the 
methods  of  the  individual. 

This  is  no  plea  for  either  the  trust  or  the  corporation; 
it  is  simply  a  suggestion  that,  before  we  charge  upon  legal 
entities  of  our  own  creation  vices  that  are  the  common  prac- 


46  THE  NEW  COMPETITION 

tices  of  individuals,  we  take  an  inventory  of  and  frankly 
acknowledge  our  own  shortcomings. 

For  instance,  when  the  employees  of  the  American 
Sugar  Refining  Company  were  found  guilty  of  smuggling 
large  quantities  of  sugar  by  tampering  with  the  scales  a 
great  cry  went  up  against  the  "trust,"  and,  by  induction,  so 
to  speak,  against  all  trusts,  as  if  cheating  the  government 
by  smuggling  was  a  new  offense  devised  and  practiced  only 
by  them. 

The  records  of  the  custom  house  show  that  smuggling  is 
the  pet  failing  of  American  citizens  who  cross  the  borders. 
From  time  immemorial  people  have  felt  at  liberty  to  "beat 
the  customs"  if  they  could. 

All  the  sugar  smuggled  by  the  trust  in  a  year  probably 
does  not  equal  in  value  articles  smuggled  into  New  York 
every  six  months  by  our  "best  people,"  by  families,  by 
children,  by  rich  and  poor,  by  high  officials.  The  practice 
is  notorious.  In  the  year  ending  June  30,  191 1,  the 
United  States  District  Attorney  in  the  City  of  New  York 
instituted  seventy-four  prosecutions  and  collected  over  two 
millions  of  dollars  in  fines  and  duties  on  smuggled  goods. 
Not  a  day  passes  that  the  customs  officials  do  not  discover 
goods  people  "failed  to  declare,"  and  collect  the  duties 
without  prosecution;  yet,  with  all  their  vigilance,  probably 
nine  travelers  out  of  ten  get  by  with  dutiable  goods  that 
escape  observation. 

It  would  be  easy  to  take  up  every  specific  charge  made 
against  a  trust  or  large  corporation  and  trace  its  origin  to 
practices  of  individuals  and  small  firms,  practices  that,  in 
the  case  of  individuals,  are  often  looked  upon  by  the  trade 
as  "shrewd"  or  "sharp,"  and,  on  the  whole,  rather  cred- 
itable. Many  a  laudatory  funeral  sermon  is  preached  over 
an  unconscionable  rascal.^ 

*In  this  connection  Herbert  Spencer's  essay  on  "The  Morals  of 
Trade,"  though  written  half  a  century  ago,  is  timely  reading. 


GROWTH  OF  COOPERATION  47 

The  writer  holds  no  brief  in  defense  of  either  the  trusts 
or  the  practices  referred  to — as  subsequent  chapters  will 
disclose — ^but  the  hypocrisy  of  those  who  assail  large  cor- 
porations, while  at  the  same  time  asserting  or  assuming 
on  the  part  of  individuals  virtues  they  do  not  possess,  is  so 
distasteful  that  the  temptation  to  expose  it  cannot  be  re- 
sisted. 

The  demagogue  who  makes  the  welkin  ring  with  de- 
nunciations of  the  trusts  is  silent  regarding  the  short 
weights  and  measures,  the  adulterated  goods,  the  poisoned 
milk  used  and  sold  by  men  in  his  audience.  He  never  says 
to  them,  "The  heads  of  trusts  may  cheat  and  defraud,  but 
they  only  do  on  a  large  scale  what  you  do  on  a  small ;  they 
cheat  the  public,  you  cheat  the  women  and  babies  in  your 
neighborhood — people  who  know  you  and  trust  you.  You 
buy  goods  of  the  trust  and,  in  the  main,  you  get  the  quality 
you  order  and  you  get  full  weight  and  measure.  You  dole 
out  these  same  goods  by  short  weight  and  measure,  as  of- 
ficial records  show." 

The  man  who  should  say  such  true  things  might  im- 
peril his  reputation  as  a  "trust  baiter,"  but  he  might  also 
gain  votes  and  high  office  in  the  end,  for  the  people  like  the 
truth  even  when  it  cuts. 

The  large  corporation,  the  "trust" — call  it  what  you  will 
— is  here  to  stay  so  long  as  competition,  national  and  in- 
ternational, is  to  produce  quantity.  It  is  here  to  stay  be- 
cause it  is  an  economic  evolution.  When  quantity  is  the 
object  men  will  cooperate  together  up  to  the  point  where 
cooperation  ceases  to  produce  the  maximum  of  results  by 
the  expenditure  of  a  minimum  of  effort — that  is  a  self-evi- 
dent proposition. 

Any  law  that  tries  to  check  cooperative  growth  is  a  law 
against  maximum  efficiency  and,  therefore,  contrary  to  the 
spirit  of  the  age  which  demands,  above  all  things,  quantity, 
which  demands  labor-  and  capital-saving  devices  in  all  in- 


48  THE  NEW  COMPETITION 

dustries,  and,  in  the  last  analysis,  the  trust  is  a  labor-  and 
capital-saving  device. 

VI 

In  so  far  as  the  "trust"  is  a  monopoly,  that  introduces 
another  and  artificial  condition,  which  must  be  dealt  with 
by  itself.^ 

But  a  monopoly  is  a  monopoly  whether  possessed  by  a 
"trust,"  a  partnership,  or  an  individual,  and,  of  all  forms  of 
monopoly,  that  of  the  large  corporation  is  probably  the 
most  vulnerable,  the  least  stable. 

Missouri  has  a  law  limiting  the  size  of  corporations 
permitted  to  do  business  in  the  state  to  a  capitalization  of 
ten  millions. 

The  amount  may  have  seemed  abundantly  large  to  the 
legislature  that  passed  the  act,  but  the  law  is  as  absurd  as 
it  is  futile,  except  for  mischief. 

A  distinguished  political  leader  proposes  to  arbitrarily 
limit  any  one  corporation's  control  of  an  industry  to  50 
per  cent.;  if  it  controls  51  per  cent,  it  is  a  bad  trust — a 
proposition  without  a  shadow  of  reason.  Aside  from  its 
fundamental  unsoundness  it  has  its  ridiculous  aspects.  The 
corporation  that  is  anxiously  trying  to  keep  within  its  50 
per  cent,  might  find  itself  in  the  clutches  of  the  law  by  the 
unexpected  retirement  of  a  distant  competitor,  or  a  number 

*  "We  must  sharply  distinguish  between  large  scale  production  and 
monopolistic  production.  This  is  something  that  the  author  has  been 
iterating  and  reiterating  for  the  past  fifteen  years  or  more.  Many 
others  have  also  been  saying  the  same  thing,  and  it  seems  now  to  be 
generally  understood.  It  is  indeed  strange  that  it  should  ever  have 
been  difficult  to  understand  the  difference  between  vast  production  and 
monopolistic  production.  One  of  our  great  retail  stores,  like  Marshall 
Field's  or  Mandel  Brothers',  in  Chicago,  or  Wanamaker's,  in  Philadel- 
phia or  New  York  City,  represents  very  large  scale  production,  but 
along  with  the  large  scale  production  there  is  the  sharpest  kind  of 
competition." — Prof.  R.  T.  Ely,  "Evolution  of  Industrial  Society,"  pp. 
96-97. 


GROWTH  OF  COOPERATION  49 

of  competitors  in  dull  times  might  close  down  for  the  pur- 
pose of  leaving  the  "trust"  in  control  of  more  than  50  per 
cent,  of  the  trade;  their  plea  would  be  they  were  forced  to 
shut  down  by  the  larger  competitor — a  sympathetic  prose- 
cuting officer  would  quickly  institute  proceedings. 

A  great  majority  of  the  states  have  so-called  "anti-trust 
laws,"  which,  while  aimed  at  trusts  and  large  combinations, 
hit  practically  all  combinations,  including  partnerships  and 
labor  unions. 

More  of  these  laws  in  detail  farther  on.  Here  it  is  suf- 
ficient to  say  that,  in  so  far  as  they  attempt  to  check  co- 
operation, they  have  proven  disastrous  rather  than  bene- 
ficial. 

Combinations  of  forces  to  accomplish  the  things  men 
wish  to  accomplish  will  continue  to  be  made  so  long  as  such 
combinations  are  essential  to  the  economic  and  speedy 
achievement  of  those  objects. 

When  men  cease  to  desire  the  things  that  large  co- 
operative forces  can  produce  most  economically,  then,  and 
not  till  then,  will  such  large  organizations  disappear. 


VII 


There  are  two  distinct  cooperative  forces  at  work  in 
every  country. 

A.  Cooperation    to    increase    production    and    lower 
prices. 

B.  Cooperation    to    control   production    and    increase 
prices. 

The  two  may,  and  frequently  do,  but  need  not  neces- 
sarily, come  in  conflict. 


50  IHE  NEW  COMPETITION 


VIII 


Cooperative  associations,  such  as  partnerships,  corpora- 
tions, trusts,  are  ordinarily  formed  to  increase  production, 
to  get  larger  results  for  the  same  outlay  in  time  and  money. 

They  are  the  logical,  the  inevitable  outcome  of  old  com- 
petitive conditions. 

When  two  men  who  are  competitors  see  they  can  do 
better,  make  more  money,  by  working  together,  they  form  a 
partnership.  When  more  men  see  they  can  do  better  by 
joining  forces  they  form  a  corporation;  when  a  number  of 
competing  corporations  see  they  can  do  better  by  consolidat- 
ing they  form  a  large  corporation,  a  trust — all  so  many 
steps  toward  securing  larger  results  at  lower  costs.^ 

*  "Competition  between  rival  producers  and  distributors — plain,  old- 
fashioned  competition — tends  to  build  up  larger  and  larger  enterprises, 
and  ultimately  to  leave  only  one,  or  at  most,  a  few  great  producers  in 
the  field.  There  are,  indeed,  exceptions  to  this  rule — counter  tendencies 
—but  the  proposition  in  the  main  is  correct,  and  will  rarely,  if  ever, 
be  questioned.  *  *  *  It  is  the  rule  rather  than  the  exception  that 
trusts  produce  more  cheaply  than  the  individual  producers  whom  they 
displace,  and  therefore  they  can  make  the  cost  to  the  consumer  less 
than  the  individual  competitors  can.  The  cost  of  an  article  to  the 
consumer — its  ordinary  retail  selling  price — depends  not  only  upon  the 
expense  of  making,  but  of  marketing  it.  The  great  individual  combi- 
nations cheapen  their  product,  not  only  by  lessening  the  cost  of  making, 
but  infinitely  more  by  saving  expenses  in  marketing.  *  *  *  in  the 
struggle  of  competition  it  is  always  the  weakest  that  is  trodden  under 
foot,  and  it  is  generally  the  smallest  that  is  the  weakest.  The  process 
is  continuous  and  cumulative.  The  little  goes  down  before  the  large, 
and  the  large  runs  above  and  upon  the  little.  This  is  not  the  result 
of  trusts.  It  is  the  result  of  competition.  It  is  not  the  result  of  trusts, 
but  the  cause  of  trusts.  The  underlying  cause  is  the  irresistible  force 
that  has  never  yet  ceased  and  probably  never  will — the  demand  for 
cheap  production.  *  *  *  Competition — ^the  old-fashioned  competition 
that  weeds  out  the  weak  and  inefficient — gives  battle,  then,  first  to  the 
partnership,  afterward  the  corporation,  and  in  our  day  the  gigantic  cor- 
poration. The  story  of  economic  progress,  from  the  dawn  of  industry 
until  the  present  moment,  is  the  record  of  the  concentration  of  effort 
and  the  combination  of  productive  capital.  Cooperation,  concentration, 
and  combination— these  are  the  results  of  competition." — "The  Trusts," 
by  William  M.  Collier,  Chapter  III. 


GROWTH  OF  COOPERATION  51 

While  certain  classes  of  the  community  are  coming  to- 
gether and  cooperating  to  produce  larger  results  for  the 
money,  other  classes  are  organizing  to  get  more  money  for 
less  effort. 

Labor  Unions. 

Farmers'  Cooperative  Societies. 

The  objects  of  these  two  great  movements  are  to  con- 
trol supply  and  advance  prices. 

Labor  unions  seek  to  fix  wages,  and  control  the  hours 
and  conditions  of  employment. 

Farmers'  cooperative  societies  seek  to  do  the  same 
thing — control,  as  far  as  possible,  both  the  amount  and  the 
marketing  of  output  with  a  view  to  getting  better  prices. 

As  between  the  two  great  cooperative  movements  A  and 
B,  the  consumer — the  man  who  pays  the  price — has  less  to 
fear  from  the  former  than  the  latter. 

Partnerships,  corporations,  trusts,  are  all  in  the  direc- 
tion of  more  for  less  money;  labor  unions  and  farmers' 
organizations  are  all  in  the  direction  of  less  for  more 
money. 


IX 


There  is  still  a  third  class  of  associations  springing  up. 

While  the  large  corporation  and  the  trust  are  the  natural 
results  of  competitive  conditions,  each  is  simply  a  more 
powerful  competitive  unit;  competition,  if  curtailed  at  all 
by  the  organization  of  a  trust,  is  curtailed  only  for  the  time 
being,  soon  it  is  keener  than  ever,  and  consolidation  may 
follow  consolidation  to  lessen  its  disastrous  effects,  or  pro- 
ducers, large  and  small,  may  form  associations  to  control 
in  a  measure  the  competition,  and  these  associations  may  at- 
tempt to  do  what  labor  unions  and  farmers'  societies  do — 
control  outputs  and  fix  prices. 


52  THE  NEW  COMPETITION 

We  have,  then,  three  well-defined  cooperative  move- 
ments : 

1.  Consolidations — partnerships,  corporations,  trusts 
— to  more  effectively  compete  by  lowering  costs  and  prices. 
This  is  the  only  cooperative  movement  the  direct  object  of 
which  is  to  serve  the  consumer  by  giving  him  what  he  wants 
at  lower  prices,  though  they  may  also  be  for  the  purpose  of 
securing  control  temporarily  and  exacting  for  a  time  arbi- 
trarily high  prices. 

2.  Unions  of  labor  and  unions  of  farmers — to  lessen 
competition  and  advance  prices. 

3.  Associations  of  competing  manufacturers  and  deal- 
ers to  lessen  competition  and  advance  prices — to  do  exactly 
the  things  unions  of  labor  and  of  farmers  seek  to  do. 


It  is  plain  from  the  bare  statement  that  consolidations 
(i)  stand  on  a  very  different  footing  from  unions  (2)  and 
associations  (3).  They  have  nothing  in  common  with  the 
latter;  in  fact,  may  be  antagonistic  to  them. 

A  consolidation  the  prime  object  of  which  is  to  secure 
results  at  lower  costs,  naturally  stands  in  opposition  to  or- 
ganizations the  object  of  which  is  to  advance  both  costs 
and  prices. 

So  long  as  the  public  demands  quantity  at  a  low  cost  it 
should  promote  the  formation  of  large  producing  units, 
simply  exercising  such  supervision  over  their  operations 
that  they  will  not  be  permitted  to  take  advantage  of  any 
temporary  monopoly  to  arbitrarily  advance  prices. 

If,  as  is  so  commonly  assumed  in  speech  and  print,  the 
public  were  made  up  of  buyers — i.  e.,  consumers  exclu- 
sively— then  it  should  be  friendly  to  ( i )  consolidations  and 
opposed  to  unions  (2)  and  associations  (3),  but  the  "pub- 


GROWTH  OF  COOPERATION  53 

lie*'  is  made  up  of  all  these  classes.  Practically  all  men  are 
both  sellers  and  buyers,  there  is  no  buying  class  as  distin- 
guished from  a  selling,  hence  the  interests  of  each  particular 
individual  are  divided.  One  moment  he  is  cooperating  with 
others  in  his  own  line  to  get  better  prices  from  those  to 
whom  he  sells,  the  next  he  is  crying  for  laws  to  prohibit 
the  cooperation  of  those  from  whom  he  buys;  labor  com- 
bines to  get  better  wages  from  employers,  but  complains 
loudly  if  employers  combine  to  get  better  prices;  farmers 
combine  to  get  better  prices  for  cotton  and  wool,  but  com- 
plain loudly  if  the  manufacturers  to  whom  they  sell  com- 
bine to  get  better  prices  for  cotton  and  woolen  goods. 

Labor  and  farmers  have  so  many  votes  that  their  com- 
plaints are  heard  in  legislatures,  and  laws  are  passed  to  pre- 
vent manufacturers  and  dealers  from  combining,  and,  at  the 
same  time,  encourage  labor  unions  and  farmers'  cooperative 
societies.  These  laws  are  so  unfair,  so  unjust,  so  opposed 
to  constitutional  guaranties  that  they  have  given  the  courts 
much  trouble ;  they  are  discussed  more  at  length  farther  on.* 

Few  people  realize  the  extent  of  the  cooperative  move- 
ment in  this  country,  but  there  is  not  a  branch  of  trade  or 
industry  that  is  not  influenced  in  some  degree  by  associa- 
tions and  organizations. 

The  country  merchant  buys  a  bill  of  goods;  the  labor 
that  produced  the  goods  is  unionized;  the  manufacturers 
who  shipped  the  goods  are  in  a  strong  organization ;  the  trav- 
eling salesman  who  made  the  sale  is  a  member  of  an  asso- 
ciation ;  the  railroads  that  carried  the  goods  are  all  members 
of  traffic  associations  that  fix  rates. 

We  are  reciting  facts : 

Labor  unions  exist, 
Employers'  organizations  exist, 
Sellers'  organizations  exist. 
Railway  associations  exist, 

*See  Chapter  XIX. 


54  THE  NEW  COMPETITION 

and,  under  present  conditions,  the  sole  interest  these  organ- 
izations have  in  the  ultimate  consumer  is  to  extract  from 
him  the  highest  possible  price. 
Viewed  from  the  soil. 

Farmers*  cooperative  societies  exist, 
Fruit  and  produce  growers'  associations  exist, 
Marketing  organizations  exist, 
and  the  sole  interest  these  organizations  have  in  the  cus- 
tomer is  to  make  him  pay  as  high  a  price  as  possible  for  the 
food  he  buys. 

XI 

The  trouble  with  all  these  organizations  is  that  each  is 
founded  upon  a  thoroughly  selfish  basis,  each  is  concerned 
solely  with  getting  as  much  as  it  can  for  itself. 

Each  union  and  association  %hts  all  the  others  to  get 
a  larger  fractional  share  of  the  price  the  consumer  pays : — 
the  labor  union  fights  for  higher  wages ;  the  manufacturer's 
association  fights  labor  and  the  railroads  to  retain  higher 
profits;  the  railroads  unite  to  fight  both  the  others  to  get 
higher  freight  rates. 

This  condition  cannot  last,  because  it  is  not  sound  funda- 
mentally. 

The  conflict  between  the  organizations  of  the  several 
classes,  with  its  spirit  of  distrust  and  antagonism,  is  bad. 

The  periodical  patching  up  of  differences  for  the  pur- 
pose of  uniting  and  more  effectually  fleecing  the  consumer 
is  worse. 

The  remedy  lies  not,  as  many  urge,  in  the  way  of  more 
drastic  laws  against  combination,  but  in  the  development  of 
more  perfect  cooperation — of  cooperation  along  right  lines, 
as  distinguished  from  false,  of  cooperation  that  takes  in  the 
consumer.  From  the  broad  economic  standpoint  there  is 
only  one  sound  combination,  and  that  is  the  combination  of 


GROWTH  OF  COOPERATION  55 

the  man  who  produces  goods  and  the  man  who  uses  them; 
within  this  comprehensive  cooperation  there  may  be  on  both 
sides  any  number  of  lesser  combinations,  associations  em- 
bracing- this  class  and  that,  but  all  must  lead  to  a  com- 
mon ground,  an  association — a  cooperative  movement — • 
wherein  the  man  who  buys  has  just  as  much  to  say  about 
both  goods  and  prices  as  the  man  who  sells ;  no  other  form 
of  cooperation  is  destined  to  survive. 

While  this  book,  in  using  actual  instances  by  way  of  il- 
lustration, will  refer  more  often  to  certain  large  industries, 
it  will  be  simply  because  the  writer  is  personally  more  famil- 
iar with  conditions  in  those  industries,  but  there  is  not  a 
proposition  laid  down  that  is  not  as  applicable  to  the  small 
industry — to  the  mechanic,  to  the  tradesman,  to  the  village 
merchant,  to  small  lumber  yard  and  coal  dealer,  to  the 
farmer  and  the  laborer,  as  to  the  large  manufacturer  and 
the  big  corporation.  In  fact,  the  large  corporation,  with  its 
facilities  for  meeting  and  controlling  competition,  has  less 
need  for  what  is  contained  in  this  book  than  the  small  pro- 
ducer— save,  as  is  undeniably  true,  that  the  large  corpora- 
tion stands  in  very  great  need  of  good  advice  and  better 
methods  if  it  is  to  gain  public  favor. 


XII 


There  is  a  large  movement  under  way  to  organize  the 
retail  trade  of  the  country  into  local,  state,  and  federal  as- 
sociations with  a  view  to  protecting  the  retail  dealer  from 
the  disastrous  effects  of  unfair  competition  and  preserving 
for  him  the  trade  that  he  can  economically  serve. 

Against  the  cry,  "Eliminate  the  middleman,"  the  mid- 
dleman proposes  to  put  up  a  struggle  to  justify  his  ex- 
istence as  an  economic  factor  in  distribution. 

We  speak  of  this  movement  in  the  retail  world  only 


S6  THE  NEW  COMPETITION 

from  hearsay,  but  have  no  hesitation  in  saying  that  its  only 
chance  for  success  depends  upon : 

Whether  the  middleman,  the  retail  dealer,  .is  a  valuable 
economic  factor; 

And  the  extent  to  which  consumers  are  taken  into  the 
proposed  associations  and  convinced  of  their  value. 

An  association  of  retail  dealers  in  a  given  town  should 
have  on  its  executive  committee  (a)  representatives  of  their 
employees  duly  named  by  the  employees;  (b)  representatives 
of  tfi'eir  customers,  named  in  some  open  manner  satisfactory 
to  the  buying  public. 

And  to  this  body  should  be  referred  all  differences  aris- 
ing between  employees  and  employers,  all  differences  arising 
between  the  dealers  themselves,  and  all  differences  arising 
between  dealers  and  buyers. 

Such  an  association  would  have  as  its  prime  objects : 

1.  The  enforcement  by  their  own  voluntary  action  of 
pure  focyd  laws,  the  use  of  correct  weights  and  measures. 

2.  Sanitary  and  hygienic  conditions. 

3.  Fair,  frank,  and  straightforward  competition. 

4.  Plainly  marked  prices,  and  one  price  to  all. 

5.  Perfect  frankness  of  statement  regarding  conditions 
under  which  goods  are  bought. 

6.  No  sales  below  cost  except  under  exceptional  con- 
ditions. 

7.  No  advertisements  or  statements  that  are  not  ab- 
solutely true. 

If  any  tricky  competitor  refused  to  cooperate  in  such  a 
program  of  frankness  and  publicity  the  law  should  permit 
the  association  to  "list"  such  a  man. 

The  term  "black  list"  sounds  formidable,  and  is  not  in 
good  repute  because  "black  lists"  have  been  abused,  but  the 
"black  list"  is  the  only  place  for  the  "black-leg"  trader,  who 
is  as  great  a  menace  to  the  consumer  as  to  the  honest  dealer. 


GROWTH  OF  COOPERATION  57 


XIII 


To  the  above  program  the  average  retail  merchant  will 
be  quick  to  raise  three  objections : 

First,  to  including  his  employees  in  the  proposed  associ- 
ation. "What's  the  use?"  he  will  ask.  At  the  foundation 
of  this  attitude  is  the  old  "Master  and  Servant"  notion 
which  is  being  so  rapidly  exploded  that  in  not  a  few  indus- 
tries the  "servants"  have  become  masters  and  dictate  con- 
ditions arbitrarily.  The  true  relationship  of  joint  interest 
is  being  recognized,  and,  if  there  is  joint  interest,  there 
should  be  cooperation  in  all  that  has  to  do  with  the  welfare 
of  the  business. 

Second,  the  average  man  will  object  to  mcluding  his 
customers  in  his  deliberations  regarding  prices,  but  the  cus- 
tomers are  the  parties  vitally  interested,  they  pay  the  prices, 
and  it  is  as  clear  as  the  noon-day  sun  that,  if  they  have  no 
voice  in  the  adjusting  of  prices,  they  will  not  be  satisfied 
whether  prices  are  low  or  high ;  they  will  welcome  new  com- 
petition, however  unfair  it  may  be,  even  though  it  demoral- 
izes trade  and  is  costly  to  the  community  in  the  long  run. 
The  great  defect  of  combinations — of  labor  and  employers 
both — in  the  past  and  at  present  is,  that  they  ignore  the  man 
who  pays  the  price  they  establish. 

Third,  while  many  merchants  will  agree  to  the  one- 
price,  plainly-marked  policy,  treating  all  customers  alike, 
few  will  agree  to  make  only  true  statements  concerning 
their  goods — in  other  words,  each  will  wish  to  reserve  the 
right  to  continue  the  ancient  trade  practice  of  lying  to  his 
customers  and  the  public.  In  their  announcements  and  ad- 
vertisements merchants  delight  in  saying  they  are  selling 
"below  cost";  the  advertisement  deceives  only  the  gullible; 
sometimes  they  do  have  a  "bargain  day"  and  sell  some 
goods  at  or  below  cost  to  create  a  run  and  sell  other  goods 


58  THE  NEW  COMPETITION 

at  more  than  enough  profit  to  make  up  the  loss.  All  these 
practices  are  "tricks  of  the  trade/'  devised  to  induce  the 
public  to  do  something  it  would  not  do  under  normal  condi- 
tions ;  these  tricks  inure  to  the  benefit  of  the  sharp  and  un- 
scrupulous dealer,  especially  to  the  dealer  in  second-rate 
and  damaged  goods,  who  rents  a  store  for  a  week  or  a 
month,  disposes  of  his  inferior  stock,  and  moves  on  before 
the  public  finds  out  it  has  been  swindled.  Rightly  speaking, 
no  man  should  be  permitted  to  advertise  or  say  that  he  is 
selling  goods  at  cost  unless  it  is  true,  or  to  say  anything  else 
to  induce  a  customer  to  part  with  his  money  unless  it  is 
true,  and  an  association  such  as  described  should  make  it  its 
business  to  bring  out  the  truth  regarding  every  statement 
made  in  the  trade,  to  establish  the  practice  of  telling  things 
as  they  are. 


CHAPTER  V 
BRUTAL   COMPETITION 


In  a  recent  speech  Senator  La  Follette  said : 

"An  example  of  unfair  and  discriminatory  prices  is  the 
practice  so  brutally  employed  by  the  Standard  Oil  Com- 
pany of  cutting  prices  in  local  markets  invaded  by  small 
competitors  while  keeping  up  prices  in  other  markets  not 
so  invaded.  Another  example  is  that  of  making  a  lower 
price  to  the  purchaser  who  does  not  buy  of  a  competitor 
than  the  price  demanded  if  he  buys  also  of  a  competitor." 

Never  mind  the  "Standard  Oil  Company**  for  the  mo- 
ment; in  this  connection  it  is  only  an  epithet  and  epithets 
lead  nowhere.  The  practices  complained  of  are  right  or 
wrong  irrespective  of  the  parties  who  resort  to  them. 
Now,  what  are  those  practices  in  plain,  un-Senatorial 
English  ? 

1.  That  a  manufacturer  or  wholesale  dealer  who  finds 
a  new  competitor  in  a  locality  quoting  low  prices  meets  the 
local  competition  without  reducing  his  prices  in  other 
places. 

This  practice  was  hoary  with  age  before  "*trusts'*  or 
corporations  were  dreamed  of,  it  began  with  the  beginning 
of  trade  and  prevails  in  every  country  on  the  face  of  the 
globe. 

2.  That  a  manufacturer  or  wholesale  dealer  makes  spe- 
cial terms  to  the  customer  who  will  agree  to  buy  exclusively 
from  him. 

59 


6o  THE  NEW  COMPETITION 

This,  too,  has  been  done  from  time  immemorial  and 
is  the  practice  of  every  ordinarily  keen  manufacturer  and 
jobber. 

In  short,  the  practices  complained  of  are  the  very  A, 
B,  C,  of  the  old  competition,  of  that  "free  and  unfettered" 
competition  that  the  Sherman  and  state  anti-trust  laws 
are  popularly  supposed  to  protect  and  foster. 


II 


The  smallest  country  dealer  is  quick  to  cut  his  prices 
on  the  appearance  of  a  competitor  and,  if  he  can  afford  it, 
he  will  cut  until  he  has  driven  the  competitor  from  the 
field. 

The  peddler  who  tramps  half  a  dozen  villages  will  sell 
at  cost  or  less  than  cost  in  one  village  to  drive  out  a  rival 
and  recoup  his  loss  by  charging  more  for  his  wares  in 
places  where  he  has  no  competition. 

The  most  insignificant  jobber  or  manufacturer  in  Sen- 
ator La  Follette's  own  state  of  Wisconsin  will  gladly  make 
a  specially  low  price  to  the  customer  who  will  agree  not 
to  buy  of  a  competitor,  for  that  is  the  simplest  way  of 
securing  a  man's  entire  trade. 

These  things,  which  have  been  done  the  world  over 
from  the  beginning  of  trade,  strike  the  popular  orator  as 
"vicious"  and  "brutal"  only  when  done  by  some  very  un- 
popular corporation. 

To  the  small  competitor  who  is  ruined  it  does  not  mat- 
ter much  whether  he  is  ruined  by  the  Standard  Oil  Com- 
pany, or  by  a  mail-order  house,  or  by  a  department  store. 
And  probably  more  small  dealers  are  driven  out  of  busi- 
ness every  year  by  mail-order  houses  and  department  stores 
than  the  Standard  Oil  Company  has  ruined  in  its  entire 
existence. 


BRUTAL   COMPETITION  6i 


III 


But  the  fact  that  practices  condemned  by  Senator  La 
Follette  are  both  old  and  universal  does  not  make  them  fair 
and  just  When  he  calls  them  "brutal"  he  is  right,  but 
they  are  brutal  whether  practiced  by  the  small  dealer  in  a 
fight  for  custom  or  by  the  large  corporation  in  a  fight  for 
trade ;  they  are  brutal  because  they  are  the  methods  of  the 
fighter  who  is  mercilessly  trying  to  down  his  opponent; 
they  are  brutal  because  they  are  natural,  instinctive,  ele- 
mental; they  are  brutal  because  they  are  human,  and  hu- 
manity in  its  struggle  for  existence  is,  and  ever  has  been, 
brutal. 

Big  corporations  have  not  made  these  practices  one 
whit  more  brutal,  they  have  simply  made  them  more  con- 
spicuous, thrown  them  into  high  relief,  so  that  the  peo- 
ple see  and  understand  them  better.  What  the  individual 
has  always  done  instinctively  and  viciously,  the  large  cor- 
poration does  systematically  and  indifferently. 

A  blacksmith  borrows  a  little  money  and  opens  a  shop 
in  a  country  village.  To  get  a  start  he  shoes  horses  for  a 
little  less  than  the  shop  across  the  street.  The  established 
smith  meets  the  new  competition  and  goes  it  one  better 
by  cutting  prices  to  cost,  for  the  express  purpose  of  driv- 
ing out  the  new  man.  In  a  few  months  the  new  man  is 
done  for,  closes  up  shop,  and  goes  away  "dead  broke," 
whereupon  the  successful  smith  gets  even  by  asking  a  lit- 
tle more  than  he  did  before,  his  charges  being  limited  only 
by  fear  of  inviting  more  competition. 

That  is  the  old,  familiar,  "cut-throat"  competition  in 
a  nutshell. 

When  the  individual  crushes  his  rival  by  "brutal" 
methods  the  cry  of  the  insignificant  rival  is  too  weak  to 
be  heard  in  Congress,  but  when  the  large  corporation 


62  THE  NEW  COMPETITION 

crushes  rivals  in  every  state  by  precisely  the  same  methods, 
the  united  cry  is  heard;  there  is  no  difference  in  the  **bru- 
tality,"  but  simply  in  the  number  affected,  and  numbers 
make  all  the  difference  in  the  world — about  election  time. 


IV 


But  the  question  is  broader  than  one  of  mere  political  or 
legislative,  or  even  economic,  expediency.  It  is  a  question 
of  progress  toward  higher  ideals  in  the  industrial  and 
commercial  world,  of  the  suppression  of  unfair,  oppres- 
sive, "brutal"  methods,  in  so  far  as  it  lies  in  the  nature  of 
man  to  suppress  them.  It  is  the  question  of  the  substitution 
of  a  new  competition  for  the  old. 

It  is  conceivable  that  the  time  may  come  when  even  the 
individual — the  village  blacksmith — will  feel  that  there 
should  be,  must  be,  some  better  way  of  dealing  with  a  rival 
across  the  street  than  ruining  him;  but  before  the  individ- 
ual attains  a  moral  and  economic  outlook  so  broad  as  that 
the  world  will  have  to  progress  far  beyond  its  present  com- 
mercial creed.  Oddly  enough,  it  is  far  easier  to  induce 
large  producers  and  large  corporations  to  make  experi- 
ments along  the  new  lines;  they  realize  the  folly  of  the 
methods  of  the  old  competition  and  are  only  too  glad  to 
try  the  new,  to  try  any  kind  of  cooperation  the  law  will 
permit. 


When  one  looks  back  with  dispassionate  eye  over  the 
last  fifteen  years — fifteen  years  of  unparalleled  financial, 
commercial  and  industrial  turmoil  and  upheaval,  the  con- 
clusion is  inevitable  that  whatever  there  has  been  of  prog- 
ress in  the  world  of  trade  and  industry  toward  higher 


BRUTAL   COMPETITION  63 

ideals,  toward  franker  and  more  straightforward  meth- 
ods, has  been  due  directly  or  indirectly  to  the  development 
and  operations  of  large  corporations,  the  so-called  "trusts." 
They  devised  nothing  new  in  "brutal"  trade  methods,  but 
they  have  done  things  on  such  a  large  scale  that  the  public 
begins  to  see  and  understand  the  unfairness,  the  oppres- 
siveness, o^  common,  every-day  trade  customs.  The  large 
corporation  has  been  a  wonderful  magnifying  mirror  in 
which  the  people  for  the  first  time  see — themselves;  it  has 
set  the  entire  legislative,  executive,  and  judicial  world 
groping  for  remedies  for  economic  ills  that  have  their 
roots  in  the  selfishness  of  the  individual.  Senator  La  Fol- 
lette  thinks  he  is  after  the  Standard  Oil  Company,  the  Steel 
Corporation,  the  large — and  friendless — combination.  He 
will  find  in  the  end  he  is  prodding  the  small  manufacturer 
and  jobber  in  his  own  state,  for  they  are  guilty  of  the 
same  "brutal"  practices,  only  on  a  lesser  scale. 

A  senator  who  is  also  a  scholarly  writer,  in  an  inter- 
esting book  ^  says : 

"If  a  large  combination  can  produce  and  sell  articles  at 
a  less  price  than  its  competitors,  and  employs  no  unfair 
methods  against  them,  is  not  the  public  benefited  rather 
than  injured?" 

The  question,  of  course,  carries  the  assumption  that  the 
large  combination  does  undersell  its  competitors,  and  that 
involves  the  elimination  of  some  or  all  of  the  competitors. 

What  consolation  is  it  to  the  bankrupt  competitor  to  be 
assured  he  was  disposed  of  gracefully  and  honorably,  that 
no  unfair  means  were  used  to  effect  his  suppression? 
Might  he  not  reply : 

"What  do  I  care  about  your  motive?  You  undersold 
me  and  put  me  out  of  business — that's  all  there  is  to  it." 

As  a  matter  of  fact  the  public  may  be  a  very  great 

*  "Corporations  and  the  State,"  by  Senator  Theodore  E.  Burton, 
of  Ohio. 


64  THE  NEW  COMPETITION 

loser  in  the  long  run  by  getting  goods  for  a  time  so  cheap 
from  one  or  a  few  large  producers  that  small  ones  cannot 
exist  and,  though  the  elimination  of  competition  by  unfair 
and  oppressive  means  is  wrong — mainly  as  between  the 
parties  immediately  concerned — the  economic  effect  on  the 
community  is  very  much  the  same  when  the  competition 
is  suppressed  by  fair  means ;  the  net  result  is  the  disappear- 
ance of  the  small  competitor. 


VI 


Senator  La  Follette  need  not  have  stopped  with  two 
instances  of  ''brutal''  competition,  above  all  with  two  that 
are  almost  innocuous  as  compared  with  others  that  are 
incomparably  more  unfair. 

For  instance  a  manufacturer  sells  a  retail  merchant  a 
stock  of  goods  sufficient  to  last  six  months.  The  next 
day  or  week  the  same  manufacturer  sells  a  rival  merchant 
in  the  same  town  similar  goods  for  enough  less  to  enable 
the  second  merchant  to  make  a  profit  at  the  first  one's  cost. 

Or,  a  manufacturer  sells  a  retailer  a  six  months'  stock 
and  then  sells  the  customer  of  the  retailer  at  either  the 
same  prices  or  at  prices  so  close  the  retailer  is  unable  to 
dispose  of  his  stock  except  at  a  loss. 

These  two  abuses  are  so  common  there  is  not  a  trade 
free  from  them,  nor  a  town  in  the  country  where  dealers 
are  not  to  be  found  who  have  been  victimized. 

The  middleman  may  be  an  evil,  a  superfluous  luxury, 
and  it  may  be  he  is  destined  to  be  eliminated,  but,  what- 
ever fate  has  in  store  for  him,  there  is  no  reason  why  he 
should  be  ruined  by  practices  that  are  so  unfair  no  one 
would  think  of  defending  them. 

Every  producer  has  the  right  to  sell  direct  to  the  con- 
sumer, or  to  the  trade,  or  to  both  so  long  as  he  does  so  ot^ 


BRUTAL   COMPETITION  ^5 

terms  that  are  open  and  aboveboard  and  not  unfair  to 
either,  but  no  producer  has  the  right  to  sell  to  the  trade  and 
the  consumer  without  informing  both  of  his  intentions  and 
his  terms  so  that  both  may  buy  with  full  knowledge,  and 
when  terms  are  announced  and  prices  made  to  both,  no 
producer  has  either  the  moral  or  the  economic  right  to 
arbitrarily  change  them  to  the  detriment  of  either  class  of 
buyers. 


VII 


Another  illustration:  the  glib  agent  of  some  concern 
that  makes  an  attractive  special  line  of  goods  visits  one  vil- 
lage after  another  and  persuades  a  local  dealer  in  each 
place  to  buy  a  large  stock  under  the  promise  he  will  have 
the  exclusive  sale.  A  few  weeks  later,  and  long  before  the 
dealer  has  disposed  of  his  stock,  he  finds  others  selling  the 
same  articles  in  the  territory  for  less  money.  The  others 
may  or  may  not  have  secured  their  stocks  direct  from  the 
maker,  but  they  have  them,  the  maker  has  taken  no  steps 
to  protect  those  who  bought  in  good  faith  and  in  the  end 
they  are  losers. 

Some  of  these  practices  are  so  glaringly  wrong  the  law 
reaches  them,  but  for  the  most  part  the  law  is  unable  to 
lay  its  hand  upon  any  breach  of  contract  or  wrong  that  it 
can  remedy;  the  individual  who  invested  perhaps  all  his 
money  upon  the  glowing  assurance  he  would  make  some 
money  is  helpless. 

The  big  lumber  company  "loads  up"  retail  yards  in  a 
number  of  towns,  then  sells  direct  to  carpenters  and  build- 
ers in  the  same  towns  thereby  making  it  impossible  for  the 
dealers  to  sell  their  stocks  except  at  losses. 

A  manufacturer  sells  a  line  of  highly  advertised  spe- 
cialties to  dealers  all  over  the  country,  suddenly  these  deal- 
ers find  department  stores  and  mail-order  houses  selling 


66  THE  NEW  COMPETITION 

the  same  articles  at  less  than  they,  the  dealers,  paid.  One 
of  two  things  has  happened — either  the  manufacturer  has 
sold  the  department  stores  and  mail-order  houses  the  goods 
at  lower  prices  than  he  sold  the  regular  trade,  or  the  de- 
partment stores  and  mail-order  houses  are  selling  the  goods 
below  cost  as  an  advertisement. 

Both  these  things  happen  daily.  Department  stores 
and  mail-order  houses  resort  to  every  expedient  to  get 
standard  and  highly-advertised  specialties  for  the  express 
purpose  of  cutting  prices.  They  offer  manufacturers  all 
sorts  of  inducements,  tempt  them  with  offers  of  orders  far 
beyond  those  received  from  the  regular  trade,  and  many 
a  manufacturer  is  weak  enough  to  yield,  even  though  he 
knows  the  department  store  and  mail-order  house  will  im- 
mediatel}^  cut  the  retail  price  and  make  it  impossible  for 
other  dealers  to  dispose  of  their  stocks  at  a  profit. 

If  the  manufacturer  does  not  yield  the  mail-order  house 
will  often  list  the  goods  at  a  cut  price  just  the  same,  and 
when  an  order  comes  in  go  out  and  buy  the  article  from 
the  regular  trade  at  the  regular  retail  price  and  fill  the  or- 
der at  a  loss. 

A  well-known  camera  is  not  sold  to  mail-order  houses 
under  any  circumstances,  nevertheless  it  is  listed  by  them 
and  serves  to  make  their  printed  lists  more  attractive. 
When  an  order  comes  in  the  effort  is  first  made  to  induce 
the  customer  to  take  instead  another  camera  ''just  as 
good,"  the  sale  of  which  the  house  controls  and  on  which 
it  makes  a  profit.  If  the  customer  insists,  the  house  sends 
out  to  a  regular  dealer,  pays  the  regular  retail  price  and 
delivers  the  camera  at  a  loss. 

"Poor  business,"  some  one  exclaims. 

Not  at  all,  it  is  one  of  the  "shrewd"  and  "cunning" 
forms  of  competition.  It  is  fair  to  neither  the  trade  nor 
the  public. 

"But  the  customer  gets  his  camera  at  a  lower  price." 


BRUTAL  COMPETITION  67 

While  fifty  other  customers  are  persuaded  to  take  the 
"just  as  good"  cameras  at  prices  out  of  all  proportion  to 
their  real  value. 

The  one  customer  who  insists  may  flatter  himself  he 
gets  a  standard  article  at  less  than  the  regular  prices,  but 
it  goes  without  saying  no  mail-order  house  would  sell  one 
thing  at  a  loss  if  it  could  not  more  than  make  up  in  other 
directions.  In  the  end  the  public  pays  and  pays  well,  as 
the  annual  statements  of  the  big  houses  show.^ 

VIII 

Both  department  stores  and  mail-order  houses  have 
their  places  in  the  economy  of  distribution;  it  is  even  ar- 
gued they  are  destined  to  supplant  the  retail  dealer  entirely 
and  in  the  end  largely  reduce  the  cost  of  handling  from 
producer  to  consumer,  all  of  which  may  or  may  not  be 
true. 

The  point  here  is  that  the  competition  described  is  in- 
defensible from  any  point  of  view. 

As  an  economic  proposition  no  store — ^whether  depart- 
ment, mail-order,  or  retail — should  be  permitted  to  sell 
any  undamaged  article  below  cost  for  the  purpose  of  at- 
tracting custom,  for  the  purpose  of  getting  the  trade  of 
others,  or  of  inducing  the  public  to  buy  things  it  does  not 
want;  the  practice  is  a  vicious  one  and  contributes  its  share 

^It  is  decidedly  encouraging  when  the  Supreme  Court  of  the| 
State  of  Washington  uses  such  language  as  this  in  a  decision  favoring 
the  right  of  a  manufacturer  to  fix  the  price  at  which  a  staple  article 
shall  be  sold  at  retail:  "Finally,  it  seems  to  us  an  economic  fallacy 
to  assume  that  the  competition,  which  in  the  absence  of  monopoly 
benefits  the  public,  is  competition  between  rival  retailers.  The  true 
competition  is  between  rival  articles,  a  competition  in  excellence, 
which  can  never  be  maintained  if,  through  the  perfidy  of  the  retailer 
who  cuts  prices  for  his  own  ulterior  purposes,  the  manufacturer  is 
forced  to  compete  in  prices  with  goods  of  his  own  production,  while 
the  retailer  recoups  his  losses  on  the  cut  price  by  the  sale  of  other 
articles,  at,  or  above,  their  reasonable  price.  It  is  a  fallacy  to  assume 
that  the  price  cutter  pockets  the  loss.    The  public  makes  it  up  on  other 


68  THE  NEW  COMPETITION 

toward  "the  high  cost  of  living/*  for  the  cost  of  living  de- 
pends  not  so  much  upon  what  we  pay  as  upon  what  we 
buy. 

From  time  immemorial  "trade'*  has  been  synonymous 
with  trickery,  and  in  many  countries  the  "trader'*  is  of 
doubtful  social  standing. 

It  would  be  easy  to  fill  a  small  volume  with  accounts 
of  "tricks  of  the  trade,"  of  habits,  customs,  practices,  petty 
frauds,  deceits,  of  over-reaching  and  cheating  reduced  to 
a  fine  art,  but  all  each  reader  has  to  do  is  to  appeal  to  his 
own  experiences  from  childhood  up — a  life-time  of  con- 
flict of  wits  against  wits  in  a  game  the  rules  of  which 
have  been  exceedingly  lax. 

But  the  signs  of  change  are  numerous  and  significant. 

IX 

How  far  and  how  rapidly  the  country  has  drifted  from 
the  fundamental  propositions  of  the  old  competition  is  in- 
dicated in  the  terms  of  a  decree  entered  last  October  in 
the  Circuit  Court  of  the  United  States  at  Cleveland,  the 
case  of  the  United  States  vs.  General  Electric  Company, 
and  other  makers  of  electric  lamps. 

An  important  point  concerning  the  decree  is  that  it 
was  not  the  decision  of  the  judge  interposed  between  con- 
tending parties,  but  the  defendants  withdrew  opposition  and 
agreed  to  a  decree  satisfactory  to  the  Government  and  the 

purchases.  The  manufacturer  alone  is  injured,  except  as  the  public 
is  also  injured  through  the  manufacturer's  inability,  in  the  face  of  cut 
prices,  to  maintain  the  excellence  of  his  product.  Fixing  the  price  on 
all  brands  of  high-grade  flour  is  a  very  different  thing  from  fixing 
the  price  on  one  brand  of  high-grade  flour.  The  one  means  the 
destruction  of  all  competition  and  of  all  incentive  to  increased  excel- 
lence. The  other  means  heightened  competition  and  intensified 
incentive  to  increased  excellence.  It  will  not  do  to  say  that  the  manu- 
facturer has  not  interests  to  protect  by  contract  in  the  goods  after  he 
has  sold  them.  They  are  personally  identified  and  morally  guaranteed 
by  his  mark  and  his  advertisement."  (Fisher  Flouring  Mills  Co.  vs.  . 
C.  A.  Swanson,  137  Pac.  144,  76  Washington  649,  51  L.  R.  A.  New  i 
Series  522.)  — ^ 


BRUTAL  COMPETITION  69 

Court.  It  marks  a  meeting  of  contending  minds  upon 
certain  propositions  that  are  as  vital  to  the  new  competi- 
tion as  they  are  fatal  to  the  old. 

X 

The  crucial  propositions  are  as  follows: 

I.  ''The  defendants  and  each  of  them  are  enjoined  from 
making  any  contracts  with  parties  from  whom  they  pur- 
chase supplies  and  machinery  used  in  the  lamp  business, 
whereby  such  parties  shall  bind  themselves  not  to  sell  such 
supplies  and  machinery  to  other  parties,  or  whereby  such 
parties  obligate  themselves  to  sell  to  defendants  at  differ- 
ent prices  than  they  sell  to  other  customers/* 

This  and  all  similar  practices  fall  within  the  province  of 
the  new  Federal  Trade  Commission.  It  is  a  curious  fact 
that  the  courts,  which  are  commonly  supposed  to  be  ultra 
conservative,  have  taken  the  lead  in  denouncing  unfair  com- 
petitive methods ;  Congress  has  lagged  far  behind.  It  was 
with  difficulty  Congress  was  induced  to  pass  the  Trade  Com- 
mission act  and  include  therein,  Section  5  making  unfair 
methods  of  competition  unlawful,  by  far  the  most  important 
provision  of  the  act  and  the  one  destined  to  do  the  country 
the  most  good  if  it  is  administered  wisely.  It  will  be  of  the 
greatest  benefit  to  both  sellers  and  buyers.  It  will  tend  to- 
ward uniform  prices  and  to  equal  treatment  of  all.  Rightly 
enforced  it  means  the  end  of  cut-throat  competition,  and, 
while  Congress  may  not  have  foreseen  it,  this  clause 
should  mean  that  manufacturers  and  sellers  may  fix  re- 
sale prices  in  order  to  protect  and  maintain  the  quality 
of  their  goods  and  protect  the  fair  trader  from  the  un- 
fair competition  of  the  trader  who  makes  the  agreement 
when  he  buys  the  goods  and  then  breaks  it  almost  always 
for  the  express  purpose  of  injuring  others  and  pro- 
moting the  sale  of  other  goods.  Turning  to  the  decree 
it  will  be  observed   that  the  injunction   runs   not  only 


70  THE  NEW  COMPETITION 

against  the  combination  of  defendants,  but  against  the 
liberty  of  each  to  do  things  that  have  been  done  from  time 
immemorial  under  the  old  competition.  In  fact,  until 
recent  years  no  one  has  thought  of  questioning  the  right, 
moral  and  legal,  of  a  group  of  manufacturers  to  take  the 
output  of  a  given  maker  of  either  the  machinery  they  need 
or  the  raw  material  they  use.  But  whatever  may  be  said 
of  the  right  of  a  combination  to  do  this  no  one  has  dreamed 
of  denying  the  right  of  the  individual — person  or  cor- 
poration— to  make  a  bargain  with  a  manufacturer  for  his 
entire  output,  or  for  a  large  percentage  of  it,  at  a  certain 
figure,  providing  the  manufacturer  would  agree  to  sell  to 
no  other  at  so  low  a  price.  That  is  the  very  essence  of  in- 
numerable contracts  entered  into  daily  between  jobbers  and 
manufacturers. 

It  is  a  part  of  the  old  creed  that  a  man  has  the  right  to 
sell  his  goods  to  whom  he  pleases,  at  the  prices  he  pleases, 
on  the  terms  he  pleases;  that  he  can  sell  the  bulk  of  his 
output  to  one  customer  at  a  special  price  and  agree  not  to 
sell  the  balance  at  less  than  a  certain  per  cent,  higher ;  that 
he  can  sell  a  part  of  his  output  to  one  purchaser  and  agree 
to  sell  to  no  other  purchaser  in  the  same  locality;  that  he 
can  build  up  the  business  of  a  customer  one  year  by  giving 
him  low  prices,  and  ruin  him  the  next  by  refusing  to  sell 
to  him  at  any  price ;  in  short,  that  he  can  use  his  own 
judgment  or  whim  in  making  prices  and  in  disposing  of 
his  product. 

Such  are  some  of  the  sacred  tenets  of  the  old  competi- 
tion; the  decree  makes  sad  havoc  of  these  notions. 


XI 


2.  ''Defendants  and  each  of  them  are  enjoined  from 
entering  into  any  contract  with  dealers  or  consumers  who 


-      BRUTAL  COMPETITION  71 

buy  certain  improved  filament  lamps  whereby  such  deal- 
ers or  consumers  must  purchase  all  the  ordinary  filament 
lamps  they  need  as  a  condition  to  obtaining  the  improved; 
nor  can  any  one  of  the  defendants  discriminate  against  any 
dealer  or  consumer  who  wishes  to  purchase  improved  fila- 
ment lamps  because  such  dealer  or  consumer  buys  either 
ordinary  lamps  or  other  improved  filament  lamps  from 
other  dealers." 

What  has  become  of  the  good,  old-fashioned  belief 
that  a  man  who  has  an  improved  or  patented  article  may 
use  it  as  a  lever  to  force  the  sale  of  his  ordinary  line  ? 

If  an  electric  lamp  manufacturer  has  an  improved  fila- 
ment lamp,  either  patented  or  of  secret  process,  why  may 
he  not  say  to  a  dealer  or  a  consumer,  "I  am  under  no  obli- 
gation to  sell  you  my  improved  lamp.  If  I  do  sell  to  you 
it  will  be  at  my  price  and  on  my  terms,  and  the  first  con- 
dition is  that  you  buy  of  me  all  the  lamps  of  all  kinds  that 
you  sell"  ? 

Up  to  the  entering  of  the  decree  who  would  have  be- 
lieved it  possible  that  any  court  would  intervene  and  say 
the  manufacturer  could  not  make  such  a  contract? 

The  decree  does  not  say  that  the  individual  may  not 
refuse  to  sell  at  all ;  it  says  that  he  may  not  refuse  on  the 
ground  that  the  dealer  or  consumer  is  also  purchasing  else- 
where. The  loop-hole  for  evasion  may  be  large,  but  the 
intent  of  the  Court  is  plain — it  is  to  give  the  customer  the 
widest  possible  latitude  in  purchasing  and  to  take  from 
the  seller  the  right  to  lay  down  conditions  that  will  tend 
to  hold  the  customer. 

If  there  were  any  possible  doubt  about  the  intention 
of  the  Court  it  is  dissipated  by  the  following  language: 
"The  defendants  and  each  of  them  are  perpetually  enjoined 
from  utilizing  any  patents  which  they  have  or  claim  to  have 
or  which  they  may  hereafter  acquire  or  claim  to  have  ac- 
quired, as  a  means  of  controlling  the  manufacture  or  sale 


72  THE  NEW  COMPETITION 

of  any  type  or  types  of  lamps  not  protected  by  lawful  pat- 
ents." 

Apply  that,  say,  to  the  maker  of  a  razor  that  is  pat- 
ented, who  also  makes  a  line  of  razors  that  are  not  pat- 
ented ;  according  to  old-time  notions  he  could  sell  all  or 
any  of  his  goods  to  any  one  willing  to  buy,  or  he  could 
refuse  to  sell  with  or  without  a  reason,  or  he  could  say,  "I 
won't  sell  you  my  patented  razors  unless  you  buy  from 
me  all  the  barber's  supplies  you  need." 

Under  the  new  theory  he  may  be  enjoined  from  "utiliz- 
ing" his  patented  razor  as  a  means  to  force  the  sale  of  his 
supplies  and  unpatented  articles. 

To  be  sure,  this  particular  decree  does  not  go  so  far  as 
to  lay  down  the  corollary  of  its  proposition,  namely:  that 
any  party  desiring  the  patented  article  shall  have  the  right 
to  come  into  court  and  compel  the  maker  to  sell  it  to  him 
at  a  reasonable  price ;  but  logically  that  right  is  implied  in 
the  proposition  that  no  maker  shall  refuse  to  sell  for  a 
particular  reason,  since,  as  already  suggested,  he  may  re- 
fuse and  give  no  reason.  As  the  matter  now  stands  the 
aggrieved  buyer  of  electric  lamps  can  bring  these  particu- 
lar defendants  into  court  only  when  they  refuse  to  sell  and 
give  a  bad  reason  for  refusing  to  sell,  to  wit:  the  reason 
the  court  holds  objectionable. 


XII 


3.  "The  defendants  and  each  of  them  are  enjoined 
from  offering  or  making  more  favorable  prices  or  terms 
of  sale  for  incandescent  electric  lamps  to  the  customers  of 
any  rival  manufacturer  or  manufacturers  than  it  at  the 
same  time  offers  or  makes  to  its  established  trade  where 
the  purpose  is  to  drive  out  of  business  such  rival  manu- 
facturer or  manufacturers    *    ♦    ♦    provided  that  no  de* 


BRUTAL  COMPETITION  73 

fendant  is  enjoined  or  restrained  from  making  any  prices 
for  incandescent  electric  lamps  to  meet,  or  compete  with, 
prices  previously  made  by  any  other  defendant,  or  by  rival 
manufacturers" 

The  very  essence  of  the  old  competition,  the  competi- 
tion that  the  public  thinks  the  law  is  trying  to  protect,  is 
the  freedom  to  undersell,  freedom  to  sell  at  cost,  at  less 
than  cost,  at  any  price  at  all,  or  to  give  away  goods,  to 
down  a  competitor.  That  has  been  the  one  resource  of  the 
old  established  house  to  protect  itself  against  the  aggress- 
ive new  comer;  it  has  been  the  right  of  the  new  comer  in 
his  fight  for  a  share  of  the  trade. 


XIII 


It  is  the  theory  of  the  old  competition  that  the  consumer, 
and  inferentially  the  public,  profits  from  this  warfare. 

It  is  the  theory  of  the  new  competition  that  in  the  long 
run  neither  the  customer  nor  the  public  profits  from  con- 
ditions that  mean  disaster  to  individuals.  In  a  sense, 
therefore,  the  very  unusual  provisions  of  the  decree  are 
along  the  new  lines  but  they  are  unconsciously  so,  and 
therefore  uncertain  in  their  general  application,  however 
pertinent  to  the  facts  of  that  particular  case. 

In  its  general  application  the  decree  overturns  the  theory 
of  the  old  competition;  it  limits  a  man's  right  to  sell  what 
he  owns  to  whom  he  pleases  on  such  terms  as  he  pleases. 
It  says,  in  so  many  words,  that  in  all  he  does  he  must  con- 
sider his  rival — that  is  the  striking  novelty  of  the  decision. 

The  theory  of  the  decree  is,  that  whereas  under  the 
old  competition  A  was  free  to  sell  to  B  on  such  terms  as 
B  was  willing  to  accept,  under  the  new,  the  interests  of  C 
must  be  considered:  if  the  bargain  between  A  and  B  in- 


74  THE  NEW  COMPETITION 

jures  C  it  is  no  longer  legal,  even  though  C  has  in  the 
transaction  only  the  indirect  interest  of  a  competitor. 

This  regard  for  the  interest  of  C  is  a  legitimate  eco- 
nomic interest.  It  is  more,  it  is  an  ethical  interest  that  the 
old  competition  ignored.  In  a  crude  way,  courts  are  com- 
ing to  realize  this  broader  interest;  coming  to  understand 
that  commercial  fights,  like  cock  fights  and  prize  fights,  are 
far  behind  present  day  standards ;  that  nothing  is  gained  by 
encouraging  two  manufacturers  to  fight  one  another  until 
both  are  bankrupt. 


XIV 


Legislatures  still  cry  out :  "Go  at  it !  Hands  off !  Let 
*em  fight  it  out!"  and  if  the  two  combatants  show  signs  of 
making  up  their  quarrels,  of  getting  together  in  a  friendly 
way,  a  large  majority  of  legislators,  state  and  national, 
raise  a  cry  of  angry  protest — the  fight  must  be  to  a  finish. 

What  will  the  radical  upholders  of  the  Sherman  law 
say  to  a  court  decree  which  commands  a  manufacturer  not 
to  compete  with  a  rival  by  underselling  him  ? 

The  decree  is  crude  in  that  it  attempts  too  much  and  ac- 
complishes too  little.  For  instance,  each  of  the  defendants 
is  ordered  not  to  undersell  a  rival  "where  the  purpose  is 
to  drive  out  of  business  such  rival."  Who  is  to  determine 
the  seller's  purpose?  By  the  terms  of  the  decree  he  may 
undersell  a  rival  until  the  latter  has  no  customers  and  neces- 
sarily goes  out  of  business,  and  each  transaction  will  be 
right  and  proper  providing  at  no  time  can  it  be  proved  that 
there  was  an  intention  to  eliminate  the  unfortunate  com- 
petitor. On  its  face  the  decree  does  not  pretend  to  re- 
strain a  man  from  going  after  all  the  business  he  can  get, 
even  to  the  getting  of  all  there  is,  but  he  must  do  it  politely 
and  with  no  provable  intent  to  injure  those  he  gently  el- 
bows off  the  earth. 


BRUTAL  COMPETITION  75 

Furthermore,  suppose  the  new  rival — who,  by  the  way, 
is  not  restrained  in  his  actions  by  the  decree — in  the  spirit 
of  the  old  competition  "goes  after  the  business"  and,  to 
get  a  foothold,  makes  "any  old  price,"  what  are  the  de- 
fendants to  do?  Assume  that  this  particular  rival  is  mak- 
ing serious  inroads,  that  he  is  quoting  cost  and  below  cost, 
or  that  he  has  an  improved  lamp  that  he  can  sell  for  less 
than  the  cost  of  other  lamps  and  yet  make  money. 

There  are  but  two  things  for  an  older  company  to  do: 
either  make  terms  with  the  rival  or  fight.  To  make  terms 
whereby  prices  are  fixed  or  territory  apportioned  is  a  sup- 
pression of  competition  and  illegal;  to  fight  by  engaging  in 
a  trade  war,  by  going  out  and  underselling  in  the  rival's 
territory,  for  the  express  purpose  of  suppressing  him,  is 
contrary  to  the  decree,  though  such  a  course  is  instinctive 
and  natural  and  is  the  old  competition  in  its  most  familiar 
form. 

•  XV 

Texas  has  a  law  that  provides :  if  any  person  engaged  in 
the  manufacture  or  sale  of  any  article  of  commerce  or 
consumption  shall,  with  the  intent  of  driving  out  competi- 
tion, or  for  the  purpose  of  financially  injuring  competi- 
tors, sell  within  this  state  at  less  than  cost  of  manufacture 
or  production,  or  sell  in  such  a  way,  or  give  away  within 
this  state,  their  products  for  the  purpose  of  driving  out 
competition  or  financially  injuring  competitors  engaged  in 
a  similar  business,  said  person,  resorting  to  this  method  of 
securing  a  monopoly  within  this  state  in  such  business, 
shall  be  deemed  guilty  of  a  conspiracy.^ 

*  "Contracts  entered  into  for  the  purpose  of  creating  an  agency 
whereby  the  agent  is  to  sell  the  goods  of  the  principal  as  its  agent  do 
not  come  within  the  terms  of  the  anti-trust  act;  but  contracts  regulat- 
ing and  controlling  the  purchase  and  sale  of  goods  whereby  parties  are 
given  exclusive  right  to  handle  the  goods  in  question  do  come  within 
the  statute," 


76  THE  NEW  COMPETITION 

This  statute  recognizes  broadly  certain  propositions  that 
are  fundamental  to  the  new  competition : 

1.  No  man  has  the  right  to  give  away  goods  to  injure 
competitors. 

2.  No  man  has  the  right  to  sell  goods  at  less  than  cost 
to  injure  competitors. 

3.  No  man  has  the  right  to  sell  goods  "in  such  a  way" 
as  will  injure  competitors. 

Under  the  old  competition  it  is  considered  not  only 
legitimate  but  cunning  and  commendable  to  do  all  these 
things. 

And  furthermore  if  any  association  of  manufacturers, 
engaged  in  interstate  commerce,  should  agree  among  them- 
selves not  to  do  the  things  forbidden  by  the  Texas  stat- 
utes— in  short,  to  obey  that  law — they  would  be  liable  to 
prosecution  and  imprisonment  under  the  Sherman  Act — 
such  is  the  delightful  confusion  of  our  laws  upon  the  sub- 
ject. 


XVI 


Massachusetts  has  a  statute  which  makes  it  a  criminal 
offense  for  any  person  or  corporation  to  "make  it  a  con- 
dition of  the  sale  of  goods,  wares,  or  merchandise,  that 
the  purchaser  shall  not  deal  in  the  goods,  wares,  or  mer- 
chandise of  any  other  person,  firm,  or  corporation." 

The  agent  of  a  tobacco  company  sold  goods  to  a  dealer 
with  the  agreement  that  if  he  bought  only  the  tobacco 
company's  goods  a  rebate  of  6  per  cent,  would  be  allowed. 

The  Supreme  Court  of  Massachusetts  held  the  statute 
constitutional  and  sustained  the  conviction  of  the  agent 
of  the  company,  saying,  ''It  is  intended  to  make  it  impos- 
sible for  a  seller  to  say  to  an  ordinary  purchaser  who  buys 
to  sell  again,  'You  cannot  buy  my  goods  except  on  condi- 
tion that  you  zvill  not  sell  goods  obtained  from  others.    If 


BRUTAL  COMPETITION  77 

yoii  sell  like  goods  manufactured  by  others  you  cannot  have 
mine:  ''^ 

And  the  court  very  rightly  remarks,  "There  is  no  doubt 
that  the  statute  puts  a  limitation  upon  the  general  right 
to  make  contracts,"  but  justifies  it  as  an  attempt  to  meet 
modem  conditions. 

When  a  similar  contract  made  by  the  same  tobacco  com- 
pany was  presented  to  the  Federal  Circuit  of  Appeals  in 
St.  Louis  the  three  judges — one  of  whom.  Judge  Van 
Devanter,  is  now  a  Justice  of  the  Supreme  Court — held 
that  the  right  of  the  tobacco  company  to  dictate  the  terms 
upon  which  it  will  dispose  of  its  products  ''is  indispensable 
to  the  very  existence  of  competition.  Strike  down,  or  stip- 
ulate away  that  right,  and  competition  is  not  only  restricted 
but  destroyed:'  ^ 

That  which  is  forbidden  by  decree  of  court  in  Ohio, 
and  is  a  crime  in  Massachusetts  and  Texas,  is  legitimate 
business  practice  in  Missouri. 

What  is  the  trouble? 

Nothing  but  the  conflict  that  is  now  on  between  the 
Old  competition  and  the  New;  the  old  finds  expression  in 
the  judgment  and  opinion  of  the  court  in  St.  Louis;  the 
new  finds  utterance — not  as  clear  and  logical  as  might  be — 
in  the  decree  of  the  court  in  Cleveland  and  in  the  judgment 
and  opinion  of  the  Supreme  Court  of  Massachusetts  and 
in  the  laws  of  that  state  and  Texas. 

XVII 

Iowa  and  Minnesota  have  statutes  making  it  a  criminal 
offense  to  sell  a  commodity  at  a  lower  price  in  one  locality 
than  is  charged  in  another. 

Nebraska  has  a  statute  prohibiting  the  reduction  of 

*  Commonwealth  vs.  Strauss,  Mass.,  74  N.  E.  Rep.  308. 
'Whitwell  vs.  Continental  Tobacco  Co.,  125  Fed.  Rep.  454. 


78  THE  NEW  COMPETITION 

price  of  a  commodity  in  general  use  in  any  particular  lo- 
cality for  the  purpose  of  destroying  the  business  of  a  com- 
petitor in  such  locality,  also  forbidding  discrimination  be- 
tween different  sections,  communities  or  cities. 

In  upholding  the  constitutionality  of  this  law  the  Su- 
preme Court  of  Nebraska^  said: 

"When  we  take  into  consideration  that  it  is  not  the 
act  itself,  but  the  act  coupled  with  the  purpose  of  destroy- 
ing the  business  and  property  of  others,  which  is  declared 
criminal,  we  find  little  trouble  in  arriving  at  the  conclusion 
that  the  statute  is  within  the  power  of  the  legislature  and 
is,  therefore,  valid/' 

South  Dakota  has  a  statute  to  substantially  the  same 
effect:  it  provides  "that  any  person,  firm,  or  corporation 
doing  business  in  the  state,  and  engaged  in  the  production, 
etc.,  of  any  commodity  in  general  use,  that  intentionally, 
for  the  purpose  of  destroying  competition  of  any  regular 
established  dealer  in  the  commodity,  or  to  prevent  competi- 
tion of  any  person  who,  in  good  faith,  intends  and  at- 
tempts to  become  such  dealer,  shall  discriminate  between 
different  sections  of  the  state  by  selling  such  commodity 
at  a  lower  rate  in  one  section  than  in  another  section,  etc., 
shall  be  deemed  guilty  of  unfair  discrimination." 

In  a  case  ^  wherein  a  lumber  company  that  maintained 
a  chain  of  lumber  yards  in  several  localities  was  charged 
with  selling  lumber  in  one  locality  at  a  lower  price  than  in 
another  for  the  purpose  of  driving  out  a  competitor,  the 
Supreme  Court  sustained  the  conviction. 

The  court  said: 

"The  statutes  of  most  states,  up  to  very  recent  years, 
were  aimed  only  at  monopolies  brought  about  through  com- 
binations, so  that,  in  treating  of  the  subject  of  monopoly, 
both  text-book  writers  and  judges  have  spoken  of  them 

"State  vs.  Drayton,  82  Neb.  254. 

*  State  vs.  Central  Lumber  Co.,  24  So.  Dak.  136. 


BRUTAL  COMPETITION  79 

as  though  monopoly  and  combination  were  one  and  the 
same,  thus  causing  many  to  consider  that  there  could  be 
no  monopoly  except  there  was  combination,  while,  as  a 
matter  of  fact,  combination  is  simply  a  means,  and  but 
one  of  the  many  means,  by  which  a  monopoly  is  acquired; 
monopoly  being  the  end  sought,  combination  a  means 
therefor. 

"To  get  rid  of  competition,  and  thus  acquire  a  mo- 
nopoly, the  man,  firm  or  corporation  possessed  of,  or  con- 
trolling, large  capital  no  longer  said  to  his  competitor: 
Tet  us  combine,  and  thus  obtain  a  monopoly  of  the  busi- 
ness we  are  engaged  in,  and  by  so  doing  increase  our 
profits  by  raising  prices  to  the  consumer/  N'o,  that  would 
be  criminal,  and  might  lead  to  trouble,  and,  too,  it  was  a 
crude  way  of  acquiring  the  thing  sought.  Now  he  says 
to  a  competitor,  if  such  competitor  be  weaker  than  he: 
'Get  out  of  my  way.  Sell  me  your  business,  or  I  will  de- 
stroy it  by  unfair  competition.' — or,  in  many  cases,  with- 
out giving  his  victim  a  chance  to  sell  to  him  the  business 
he  has,  he  sets  about  destroying  it,  and  by  a  method  as 
certain  as  the  passing  of  time,  a  method  that  need  bring 
to  him  not  even  an  immediate  financial  loss.  He  puts  the 
price  of  the  commodity  handled  so  low  at  the  point  where 
his  victim  is  in  business  as  to  make  it  impossible  to  meet 
such  price  except  at  a  loss,  and,  to  ofifset  what  loss  he 
suffers  at  that  point,  he  raises  prices  at  one  or  more  other 
points.  As  soon  as  this  practice  became  quite  prevalent, 
the  public  realized  that  an  old  evil  was  being  brought 
upon  them  by  a  new  method ;  a  method  that  not  only  tended 
as  its  natural  and  necessary  result  to  place  a  monopoly 
into  the  hands  of  the  strong,  but  did  not,  as  before,  permit 
the  competitor  to  share  in  the  fruits  of  the  wrong — an  evil 
bringing  loss  to  the  public  and  wrong  and  injustice  to  the 
weak  tradesman.  Again  human  experience,  recognizing 
the  laws  of  God  and  nature,  controlled  and  guided  by  an 
aroused  public  conscience,  evolved  a  new  law,  and  placed 
it  upon  the  statute  books  of  this  and  many  other  states,  a 
law  aimed  at  monopolies  obtained  through  unfair  com- 
petition." * 

*This  opinion  is  interesting  reading  in  connection  with  Chapter 

xvn. 


80  THE  NEW  COMPETITION 

XVIII 

The  plain  truth  is  that  the  very  theory  of  the  old  com- 
petition, free  and  unfettered  individualism,  has  received 
its  severest  blows  at  the  hands  of  its  professed  friends. 
In  curtailing  the  liberty  of  the  "trust,"  the  liberty  of  the 
lesser  corporation,  of  the  partnership  and  of  the  individual, 
disappears;  what  is  unconscionable  for  one  is  unconscion- 
able for  another.  The  "brutality"  of  a  given  act  does  not 
depend  upon  the  size  of  the  trust  that  commits  it;  it  de- 
pends upon  conditions  as  they  exist  between  the  parties  to 
the  act;  and  there  may  be — usually  is — far  more  of  vi- 
ciousness  in  the  conduct  of  an  individual  toward  his  com- 
petitor. 

It  goes  without  saying  that  courts  cannot  intervene 
and  regulate  all  the  large  corporations  of  the  country,  to 
say  nothing  of  large  manufacturers  and  dealers  that  are  not 
corporations.  That  being  true,  why  should  not  competi- 
tors be  permitted  to  get  together  voluntarily  and  adopt 
rules  for  the  regulation  of  competition  along  the  lines  laid 
down  in  the  cases  and  statutes  referred  to? 

Voluntary  cooperation  with  a  minimum  of  state  super- 
vision is  far  better  than  compulsory  action  with  a  maximum 
of  supervision.  In  the  present  uncertain  state  of  the  law  the 
attitude  of  Congress  would  seem  to  be  that  of  forbidding 
the  voluntary  association  that  is  absolutely  necessary  to 
eliminate  those  "brutal"  features  of  competition  the  courts 
and  Senator  La  Follette  agree  must  be  eliminated. 


r 


XIX 


Since  the  foregoing  sections  of  this  chapter  were  writ- 
ten the  Clayton  and  Trade  Commission  Laws  have  been 
passed. 

Inasmuch  as  these  laws  are  printed  in  full  farther  on 


BRUTAL  COMPETITION  8i 

(see  appendices  IV  and  V,  for  the  laws  and  comments 
thereon)  only  the  sections  immediately  in  point  will  be 
referred  to  here.    They  provide: 

1.  Unfair  methods  of  competition  are  unlawful.^ 
Rightly  administered  this  ought  to  prove  the  pure  food 

law  of  commerce. 

Up  to  the  present  time  the  phrase,  "Unfair  Competi- 
tion," has  had  a  limited  and  special  application  in  both 
English  and  American  law,^  but  the  new  law  is  intended 
to  reach  a  much  wider  range  of  unfair  methods. 

2.  It  shall  be  unlawful  for  any  person  to  either 
directly  or  indirectly  discriminate  in  price  between  different 
purchasers,  where  the  effect  of  such  discrimination  may 
be  to  substantially  lessen  competition,  or  tend  to  create  a 
monopoly;  provided,  however,  that  discrimination  in  price 
may  be  made  on  account  of  differences  in  grade,  quality,  or 
quantity,  and  also  to  allow  for  difference  in  the  cost  of 
selling,  or  transportation,  and  also  where  made  in  good 
faith  to  meet  competition,  and  providing  further  that  noth- 
ing in  the  Act  shall  prevent  persons  from  selecting  their 
own  customers.^ 

It  is  needless  to  say  the  exceptions  after  the  word 
"provided'*  deprive  this  section  of  nearly  all  its  force,  since 
they  open  the  door  quite  freely  to  about  all  the  discrimina- 
tory practices  that  now  exist.  In  this  respect  the  act  is 
far  more  favorable  to  discriminations  than  the  laws  of 
many  of  the  states,  for  the  state  laws  punish  with  fine  and 
imprisonment  discriminations  in  prices  between  parties  and 
localities  for  the  purpose  of  injuring  a  competitor. 

As  drawn,  most  of  the  state  laws  are  too  drastic  to  be 
literally  enforced,  while,  possibly,  the  Clayton  Act  is  too 
lenient  in  its  broad  exceptions. 

*  Sec.  5,  Trade  Commission  Act. 

2  See  page  400. 

'  Sec.  2,  Clayton  Act. 


82  THE  NEW  COMPETITION 

The  vital  point,  however,  is  that  it  is  to  the  interest 
of  every  man  engaged  in  commerce  to  obey  this  law  in 
letter  and  spirit,  since  it  tends  toward  stable  and  uniform 
prices  and  makes  for  fair  dealing. 

If  this  section  of  the  Clayton  Act  could  be  enforced, 
regardless  of  its  exceptions,  it  would  be  a  boon  to  both 
sellers  and  buyers. 

Instinctively  men  who  are  accustomed  to  "run  their 
business  to  suit  themselves"  will  denounce  the  law  as  med- 
dlesome, mischievous,  etc.,  etc.,  but  it  is  not,  it  is  a  step 
in  advance  because  it  is  diametrically  opposed  to  the  de- 
structive, "cut-throat"  spirit  of  the  Sherman  Law, 

The  spirit  of  the  Sherman  Law  is  unrestricted  compe- 
tition, and  that  means  unrestricted  discrimination,  the  bit- 
terer and  more  vicious  the  better ;  the  spirit  of  the  Clayton 
Act  is,  treat  all  men  fairly,  do  nothing  to  injure  your 
competitor. 

Under  the  Sherman  Law  it  is  almost  a  presumption  of 
guilt  if  your  prices  are  the  same  as  your  competitors; 
under  the  Clayton  Act  it  is  almost  a  presumption  of  guilt 
if  they  are  not  the  same. 

Under  the  Sherman  Law  you  run  the  risk  of  being 
found  guilty  if,  before  making  your  own  prices  in  a  given 
town,  you  ask  the  local  dealer  what  his  prices  are,  and 
charge  the  same. 

Under  the  Clayton  Act  you  run  the  risk  of  being  found 
guilty  if  you  go  into  a  town  and  make  prices  without  first 
learning  what  the  local  dealer  asks,  for  the  Clayton  Act 
simply  permits  you  to  meet  competition. 

In  short,  the  Clayton  Act  makes  it  essential  for  a  man 
to  act  very  cautiously  lest  he  injure  a  competitor  by  wit- 
tingly or  unwittingly  discriminating  in  prices. 

As  for  deliberately  taking  an  order  below  cost  to  get 
business  away  from  a  competitor,  that  is  quite  without  the 
pale  of  the  Act. 


BRUTAL  COMPETITION  83 

Time  will  demonstrate  the  significance  of  this  important 
section.  It  is  no  new  declaration;  Congress  lagged  many 
years  behind  a  number  of  the  states.^ 

3.  Unlawful  for  any  person  to  sell  or  lease  anything, 
whether  patented  or  unpatented,  or  give  a  rebate  or  dis- 
count on  condition  that  purchaser  or  lessee  shall  not  use 
or  deal  in  the  goods,  machinery,  etc.,  of  a  competitor, 
where  the  effect  of  such  lease,  sale  or  contract,  etc.,  may 
he  to  substantially  lessen  competition  or  create  a  monopoly.^ 

Sections  2  and  3  of  the  Clayton  Act  provide  no  crim- 
inal penalty.  Their  enforcement  are  left  to  the  Federal 
Trade  Commission.^ 

But  it  is  expressly  provided  in  section  4  of  the  Act 
that  any  person  who  may  be  injured  in  his  business  or 
property  "by  reason  of  anything  forbidden  in  the  anti- 
trust laws  may  sue  in  any  District  Court  of  the  United 
States  in  the  district  where  the  defendant  resides  or  is 
found  or  has  an  agent,  without  respect  to  the  amount  in 
controversy,'*  and  recover  three-fold  damage,  with  costs 
and  reasonable  attorney's  fee. 

XX 

The  broad  provisions  of  the  new  law  are  in  line  with 
the  spirit  and  argument  of  this  book. 

Following  the  lead  of  many  of  the  states,  Congress  has 
taken  advanced  ground  in  the  endeavor  to  correct  unfair 
and  vicious  competitive  practices.  Above  all,  it  has  pro- 
vided a  tribunal  to  bring  these  practices  into  the  light  of 
publicity  and  to  correct  them  before  they  have  gone  so 
far  as  to  become  criminal. 

*  Arkansas,  Idaho,  Kansas,  Louisiana,  Massachusetts,  Mississippi, 
Missouri,  Montana,  Nebraska,  New  Jersey,  North  Carolina,  North 
Dakota,  Oklahoma,  South  Carolina,  South  Dakota,  Texas,  Utah,  Wis- 
consin, Wyoming,  have  laws  against  unfair  practices. 

^  Sec.  3,  Clayton  Act. 

*See  Sec  u  of  the  Clayton  Act. 


84  THE  NEW  COMPETITION 

The  Trade  Commission  Act  is  preventive  in  letter  and 
spirit.  It  is  made  the  duty  of  the  Commission  to  guide  and 
forbid  rather  than  punish.  Punishment  is  left  to  the  proper 
authorities  if  the  admonitions  of  the  Commission  are 
unheeded. 

This  does  not  mean  that  the  Commission  stands 
between  the  criminal  and  punishment.  All  the  criminal 
provisions  of  state  and  federal  laws  remain  intact.  But 
whenever  the  Commission  is  appealed  to  in  time  and  in 
good  faith,  practices  that  might  become  criminal  will  be 
forbidden. 

In  short,  there  is  a  tribunal — composed  of  lawyers  and 
business  men^ — ready  to  hear  complaints  and  adjust  same 
before  there  has  been  any  flagrant  violation  of  law. 


ame  i 


CHAPTER  VI 
TRUE   VS.    FALSE   COMPETITION 


"Then  your  argument  is  that  all  competition  should 
be  suppressed?"  someone  says. 
"No.'' 

"But  if  competition  is  war " 

"Yes."      — 

"And  war  is " 

"Yes." 


"Should  not  men  stop  competing?" 
"In  a  false  way,  yes ;  in  a  true  way,  no, 
"What  do  you  mean?" 
"We  will  see." 


II 


Two  runners  engage  in  a  race.  The  distance  is  a  mile. 
They  start,  side  by  side,  at  the  crack  of  a  pistol.  They  do 
not  start  at  top  speed  but  reserve  their  strength.  They 
keep  close  together  and  each  gages  his  efforts  by  what  the 
other  is  doing.  For  nearly  the  entire  distance  they  may  run 
shoulder  to  shoulder,  neither  leading,  or  one  may  set  the 
pace,  the  other  following  close  at  his  heels.  At  the  finish 
there  is  a  spurt  and  it  often  happens  the  race  is  won,  not 
by  the  one  who  can  actually  run  faster  for  the  entire  dis- 
tance, but  by  the  man  who  has  used  the  better  judgment 

85 


86  THE  NEW  COMPETITION 

and  husbanded  his  resources  for  the  final  dash,  surprising 
his  opponent. 

Or,  a  strong  runner  may  take  it  easy  and  win  without 
being  obliged  to  exhaust  all  his  energy.  It  is  all  a  matter 
of  knowledge  of  past  performances,  watchfulness  during 
the  contest  and  the  exercise  of  good  judgment  at  each 
stage  of  the  race. 

In  such  a  race  the  competition  is  keen,  real,  and  bene- 
iiciaL  --- 

Suppose,  however,  the  two  runners,  instead  of  running 
on  the  same  track  where  each  may  know  what  the  other  is 
doing  and  govern  himself  accordingly,  are  started  on  sep- 
arate tracks.  Each  knows  he  is  to  run  a  mile  against  the 
other,  but  as  neither  can  see  what  the  other  is  doing,  the 
only  prudent  thing  is  for  each  to  run  the  entire  distance  as 
fast  as  he  can,  to  run  to  the  point  of  exhaustion. 

In  such  a  race  there  is  no  real,  no  true  competition. 
The  runners  are  not  competing  one  against  the  other,  but 
each  is  running  against  himself,  doing  the  best  he  can  re- 
gardless. At  the  end  when  records  are  compared  they  find 
that  both  expended  a  large  amount  of  energy  needlessly — 
the  winner  in  running  faster  than  necessary,  the  loser  in 
making  a  hopeless  contest. 

To  make  the  point  still  clearer — suppose  the  two  run- 
ners start  at  the  same  moment  on  the  same  track  as  under 
the  first  h)rpothesis  and  for  the  first  half  they  are  side  by 
side  and  the  competition  is  real  and  keen.  At  the  end  of 
the  half  mile  the  track  divides,  the  diverging  lines  are 
separated  by  a  barrier  so  high  neither  runner  can  know 
what  the  other  is  doing.  What  is  the  inevitable  result? 
From  the  moment  they  lose  sight  of  one  another  all  real 
competition  ceases,  each  man  puts  forth  all  his  strength 
and  runs  until  he  collapses.  That  is  false  or  pseudo  com- 
petition. 

A  man  may  run  against  time,  jump  to  beat  a  record. 


TRUE  VS.  FALSE  COMPETITION         87 

play  golf  against  Col.  Bogey,  but  all  such  attempts  are 
called  competition  only  by  courtesy.  They  lack  the  vital, 
the  stimulating  elements  of  knowledge  against  knowledge, 
strength  against  strength — of  man  against  man — that  make 
real  competition,  competition  that  is  worth  while  to  those 
who  compete  and  to  those  who  look  on — to  competitors 
and  public. 


Ill 


From  the  foregoing  it  follows  that  true  competition  ex- 
ists only  where 

(A)  There  are  two  or  more  competitors, 

(B)  Competing  under  conditions  that  enable  each  to 
know  and  fairly  jud^e  what  the  others  are  doing. 

The  essence  of  competition  lies  in  the  element  of  knowl- 
edge, it  is  real,  true,  and  beneficial  in  proportion  to  its 
openness  and  frankness,  its  freedom  from  secrecy  and 
underhand  methods. 


IV 


A  carpenter  in  a  small  town  is  asked  to  make  a  bid  on 
a  piece  of  work.  The  owner  says  he  intends  to  get  other 
bids  and  will  let  the  work  to  the  lowest;  as  a  matter  of 
fact  he  may  have  no  intention  of  asking  for  additional 
bids.  To  get  the  lowest  possible  figure  the  carpenter  is  led 
to  believe  he  is  competing  with  others ;  he  is  in  the  position 
of  a  runner  in  a  walled  track  who  is  falsely  told  some  one 
is  running  against  him  in  an  adjoining  track. 

The  carpenter  needs  the  work,  he  labors  over  his  esti- 
mate, he  makes  a  figure  so  close  to  cost  there  is  barely  a 
living  wage  in  it. 

What  happens  ?  The  tricky  owner  looks  at  the  bid,  and 
shakes  his  head.    "Too  bad,  you're  too  high."     The  poor 


88  THE  NEW  COMPETITION 

man  is  crestfallen.  "I — I  figured  it  as  low  as  I  could  and 
do  it  right." 

After  a  few  more  discouraging  remarks  and  references 
to  other  and  lower  offers,  the  owner  says  magnanimously, 
"ril  tell  you  what  I  will  do,  if  you'll  throw  off  fifty  dol- 
lars, the  job  is  yours." 

Thef^  is  no  use  protesting ;  the  shadow  of  the  unknown 
quantity,  of  the  other  fellow  whose  figure  is  a  "little  under," 
is  over  the  whole  affair;  the  man  is  helpless,  he  has  no 
means  of  ascertaining  the  truth  of  the  owner's  statement, 
he  is  on  a  footing  of  jealous  distrust  with  the  other  car- 
penters in  the  village,  he  would  not  think  of  asking  them, 
he  takes  the  contract,  does  an  honest  piece  of  work  and 
comes  out  a  loser. 

Is  there  any  real,  any  true  competition  in  that  transac- 
tion?   None  at  all — only  false  or  pseudo  competition. 

The  one  bidder — like  the  one  runner — thinks  he  is  com- 
peting with  others ;  the  owner  knows  he  is  not. 

"But,**  says  the  man  in  the  street,  "it  was  the  possibility 
other  competitors  might  bid  that  made  the  price  so  low." 

No,  the  figure  bid  was  based  upon  the  man's  own  neces- 
sities; if  he  had  not  been  in  desperate  need  of  work  he 
would  not  have  made  that  final  reduction  which  occasioned, 
the  loss. 

The  public  is  saturated  with  the  notion  that  potential 
competition  is  true  competition,  that  competition,  like  bogey 
men,  should  be  present  in  the  dark  to  frighten  prices  down, 
that  anything  like  friendly  intercourse  between  competi- 
tors is  a  step  toward  the  suppression  of  competition  and 
reprehensible.  Potential  competition  is  competition,  but  it 
is  not  true  competition  ;^  it  is  false  competition  of  the  most 
demoralizing  nature. 

But  suppose  the  owner  does  get  estimates  from  other 
carpenters,  the  situation  remains  unchanged;  each  carpen- 
ter prepares  his  estimate  under  precisely  the  same  condi- 


TRUE  VS.  FALSE  COMPETITION         89 

tions  of  secrecy  and  jealous  distrust,  and  the  bid  of  each 
is  based  upon  his  own  needs;  if  he  has  considerable  work 
in  hand  he  names  an  arbitrarily  high  figure  on  the  long 
chance  he  may  get  it;  if  he  is  badly  in  need  of  work  he 
names  an  absurdly  low  price  to  the  detriment  of  himself 
and  his  creditors — in  either  case  there  is  no  true,  healthful 
competition. 


It  is  this  false  or  pseudo  competition  that  prevails  in 
the  contracting^Hdnmanufacturing  worlST 

It  does  not  prevail  in  those  sections  of  the  labor  world 
controlled  by  unions.  The  unions  fix  and  make  known  rates 
of  wages  and  conditions  of  employment.  It  is  only  with 
unorganized  labor  that  the  employer  is  able  to  say  truth- 
fully or  untruthfully  "You  ask  too  much,  I  can  hire  any 
number  of  men  as  good  as  you  for  less." 

But  even  with  unorganized  labor  the  prevailing  scale 
of  wages  in  any  given  employment  is  soon  known.  A  man 
may  go  to  work  for  two  dollars  a  day  but  if  he  learns  that 
others  doing  the  same  work  get  two  and  a  half,  he  soon 
demands  more  or  quits.  Employment  bureaus,  even  those 
run  by  unscrupulous  proprietors,  are  so  many  effective 
agencies  for  the  dissemination  of  knowledge  regarding 
work  and  wages.  It  is  impossible  to  employ  a  cook  or  a 
maid  at  less  than  the  prevailing  wage.  Unhappily,  a  poor 
cook  asks  and  gets  as  much  as  a  good,  not  because  she  is 
worth  it,  but  because  she  has  been  told  what  others  get  and 
will  not  work  for  less. 

In  the  labor  world,  organized  and  unorganized,  wages 
do  not  fluctuate  greatly.  There  may  be  a  general  and 
steady  advance  as  of  recent  years  or  slight  recessions  from 
time  to  time,  but  there  are  no  violent  fluctuations. 

Twenty-five  per  cent,  of  the  labor  employed  in  a  given 


90  THE  NEW  COMPETITION 

industry  may  be  laid  off  without  wages  dropping  one  per 
cent.  The  period  of  depression  must  be  very  prolonged 
and  very  severe  to  materially  affect  the  rate  paid  those 
who  are  kept  at  work;  they  will  consent  to  work  for  less 
hours  per  week  before  they  will  accept  a  less  sum  per  hour; 
while  the  unemployed,  however  desperate  their  condition, 
are  loath  to  offer  to  work  for  less  than  what  they  formerly 
received. 

These  conditions  show  how  much  better  informed  and 
better  fortified  certain  sections  of  the  labor  world  are 
when  it  comes  to  competition  than  are  contractors  and 
manufacturers. 

The  contractor  has  no  union,  no  employment  bureau 
to  which  he  can  appeal  for  information  before  he  makes  a 
contract.  He  is  obliged  to  make  his  offer  in  the  dark  and 
when  it  is  accepted  he  is  bound  to  do  the  work  though  it 
ruin  him ;  he  cannot  demand  more  or  quit.  When  he  finds 
he  was  deceived  regarding  the  bids  of  other  contractors 
and  that  they  are  getting  more  for  similar  work  and  pos- 
sibly from  the  same  owner,  he  must  stand  by  his  contract. 


VI 


Between  the  blacksmiths  of  a  small  village  the  competi- 
tion may  be  more  real,  it  may  be  so  open,  so  true  that  the 
charge  for  shoeing  a  horse  is  practically  fixed. 

Why  should  a  false  and  vicious  competition  prevail 
among  carpenters  and  a  truer  form  among  horseshoers? 

The  answer  is  found  in  the  conditions  under  which 
each  class  does  business. 

The  carpenter  bids  on  jobs  no  two  of  which  are  alike 
and  each  bids  with  reference  to  his  own  particular  needs 
and  with  little  or  no  knowledge  regarding  the  bids  of 
others. 


TRUE  VS.  FALSE  COMPETITION         91 

The  horse-shoer  has  his  shop  to  which  his  customers 
must  come,  it  is  open  to  the  street,  his  competitor  can  see 
who  the  customers  are  and  the  amount  of  work  he  is  do- 
ing. 

While  waiting  for  his  horse  to  be  shod  a  farmer  may 
drop  into  the  other  shop  just  to  see  whether  charges  are 
lower  or  work  better. 

The  competition  is  so  open  that  every  blacksmith  in 
the  place  is  afraid  to  cut  either  his  own  or  a  competitor's 
charge.  If  he  cuts  a  competitor's  his  action  will  be  known 
so  quickly  he  will  reap  no  advantage;  if  he  cuts  his  own 
price  of  the  day  before,  his  customers  will  hear  of  it  im- 
mediately and  those  who  were  overcharged  will  resent  it 
and  those  he  favors  will  distrust  him. 

The  only  safe  course  is  to  do  as  retail  merchants  do, 
treat  all  alike,  charge  a  fair  price  and  a  price  that  is  known 
to  everybody,  deal  with  customers  so  frankly  and  openly 
that  they  know  they  are  in  good  hands — the  man  who  does 
this  may  get  even  higher  prices  for  his  work  than  the  shifty 
competitor  who  works  for  less  but  who  in  his  short-sighted 
efforts  to  get  trade,  makes  different  charges  to  different 
customers. 

True  competition  begins  with  the  development  of  con- 
ditions that  tend  to  eliminate  secrecy  in  bidding  and  charg- 
ing. 

It  is  not  that  horse-shoers  are  better  or  more  forbearing 
than  carpenters;  on  the  contrary,  they  are,  as  a  class,  far 
more  pugnacious,  far  more  prone  to  "down"  the  other  fel- 
low if  they  can,  but  conditions  compel  them  to  work  in  the 
open,  experience  teaches  them  the  commercial  advantage 
of  keeping  track  of  what  others  in  their  trade  are  doing 
and  charging;  that  is  the  first  inquiry  a  new  man  would 
make;  before  opening  a  shop  he  would  go  around,  take  a 
good  look  at  shops  already  doing  business  and  find  out  all 
he  could  about  them.    In  the  light  of  the  information  so 


92  THE  NEW  COMPETITION 

gathered,  he  would  have  to  decide,  first,  whether  the  vol- 
ume of  business  warranted  another  shop ;  secondly,  whether 
to  get  the  business  it  would  be  necessary  to  cut  the  prevail- 
ing schedule  of  charges. 

In  just  the  proportion  that  all  this  information  is  avail- 
able, is  the  competition  real  and  intelligent.  When  one 
man  knows  what  another  is  doing  he  is  in  a  position  to  com- 
pete with  him;  when  he  does  not  know,  the  competition, 
so-called,  is  mere  blind  rivalry  wherein  both  may  ruin 
themselves  to  the  detriment,  in  the  long  run,  of  both  cus- 
tomers and  the  public. 


VII 


What  is  true  in  the  letting  of  small  contracts  to  masons, 
carpenters,  painters,  and  all  other  trades,  is  equally  true 
in  the  letting  of  large. 

A  railroad  is  in  need  of  a  crane.  It  requests  bids  of  a 
number  of  crane  builders,  fixing  a  day  and  hour  by  which 
the  bids  must  be  delivered  at  the  office  of  the  purchasing 
agent. 

The  several  companies  are  located  in  different  cities 
in  different  states ;  they  have  no  connection  and  no  commu- 
nication one  with  another ;  each  is  a  jealous  and  independ- 
ent unit.  According  to  popular  notions  the  competition  is 
ideal — it  is  the  familiar  "cut-throat"  variety.  At  the  hour 
named  sealed  bids  are  handed  in,  but  the  work  is  seldom 
let  in  good  faith  to  the  lowest  bidder.  The  filing  of  the 
bids  is  but  the  dealing  of  the  cards  in  a  game  wherein  the 
purchasing  agent  is  given  five  aces ;  he  takes  the  bids,  com- 
pares them,  and  three  times  out  of  five,  begins  more  or  less 
secret  negotiations  with  one  or  more  of  the  bidders  to 
secure  reductions.  Favored  bidders  are  told  what  others 
have  bid,  or  a  bidder  is  sent  for  and  told,  "If  you  will 


TRUE  VS.  FALSE  COMPETITION         93 

knock  off  $500  I  will  give  you  the  contract  right  here  and 
now/' 

It  is  the  offer  of  the  contract  then  and  there  that  is  so 
effective ;  few  salesmen  for  companies  in  need  of  work  can 
resist  the  "take  it  or  leave  it"  threat. 

The  president  of  a  large  manufacturing  company  said : 

"When  I  need  a  crane  I  write  for  bids;  when  the  bids 
come  in  I  send  for  the  representatives  of  the  companies 
whose  cranes  I  am  willing  to  use.  I  put  one  man  in  one 
room,  the  other  in  another  where  they  can't  get  at  each 
other,  then  I  go  from  one  to  the  other,  giving  each  a 
chance  to  underbid  the  other,  but  I  do  not  name  any  fig- 
ures. All  I  have  to  say  is,  'Well,  have  you  any  other 
offer  to  make  ?'  and  each  will  cut  his  price  again  and  again, 
sometimes  when  he  is  already  low." 

The  result  of  this  bidding  in  the  dark  is  that  the  pur- 
chaser gets  a  crane  for  less  than  it  is  really  worth,  often — 
in  dull  times — for  less  than  cost ;  the  men  who  use  the  crane 
get  a  piece  of  machinery  that  has  been  cut  and  pared  until 
the  margin  of  safety  is  reduced  to  the  danger  line — no 
one  has  profited  by  the  transaction. 

In  all  respects  the  letting  of  the  crane  contract  parallels 
the  letting  of  the  carpenter's  job — the  same  secrecy,  the 
same  distrust,  the  same  ignorance,  the  same  playing  into 
the  hands  of  purchasers  quick  to  take  advantage,  the  same 
wide  differences  in  prices — differences  that  alone  prove  ab- 
sence of  true  competition. 


VIII 


The  point  is  made  that  a  wide  difference  in  bids  on  work 
of  standard  character  demonstrates  the  lack  of  true  com- 
petition. Given  a  piece  of  work  that  presents  no  unusual 
features  and  it  goes  without  saying  that  ten  intelligent  con- 
tractors would  come  to  substantial   agreement  about  its 


94  THE  NEW  COMPETITION 

cost  if  they  conferred  together  and  compared  data;  their 
bids  would  not  vary  greatly  in  true  competition  and  such 
differences  as  there  were  would  be  normal,  easily  explained 
and  justified.  But  where  two  bidders  vary  so  widely  in 
their  figures  that  each  looks  upon  the  other  as  "wild"  in 
his  estimates,  something  is  wrong,  either  the  one  is  too 
high  or  the  other  too  low,  the  intelligent  bidder  in  between 
is  the  sufferer. 

In  false  competition  the  honest  and  intelligent  bidder  is 
always  at  a  disadvantage  when  there  is  little  demand  for 
work.  When  there  is  more  than  enough  work  for  all  it 
does  not  matter  so  much  what  the  ignorant  bidder  may  do ; 
he  may  bid  high  and  make  more  than  he  should,  or  he 
may  bid  low  and  lose  money,  the  intelligent  bidder  pur- 
sues the  even  tenor  of  his  way,  knowing  his  costs  he 
makes  sure  of  a  fair  profit  on  each  contract  taken. 

It  is  in  the  dull  times  that  the  intelligent  bidder  feels 
the  competition  of  ignorance  and  unscrupulousness.  He  is 
caught  between  two  fires,  that  of  the  man  who  does  not 
know  his  costs,  and  bids  recklessly  in  the  dark,  and  the  man 
who  knows  his  business,  but  bids  low,  with  the  intention  of 
working  out  a  profit  in  some  tricky  way — of  the  two  the 
ignorant  bidder  is  the  more  troublesome  factor,  his  com- 
petition is  disastrous  because  blind  and  reckless. 


IX 


In  transactions  such  as  those  outlined,  the  factors  of 
true  competition  are  present — (a)  work  to  do;  and  (b)  a 
number  of  parties  able  and  anxious  to  do  it;  but  some  ele- 
ment is  lacking,  some  element  the  presence  of  which  would 
transform  the  false  and  vicious  competition  into  true  and 
healthful.  That  element  is  knowledge,  such  knowledge  of 
qonditions  and  considerations  affecting  the  price  of  the 


TRUE  VS.  FALSE  COMPETITION         95 

work  as  would  place  all  bidders  on  a  footing  of  something 
like  equality  in  the  preparation  of  their  estimates. 

In  proportion  to  the  fullness  and  accuracy  of  such 
knowledge  is  the  competition  keen,  intelligent,  and  bene- 
ficial to  bidders,  purchasers  and  the  community.  To  pre- 
cisely the  extent  that  ignorance,  jealousy,  deceit  prevail  is 
the  competition  apparent  rather  than  real,  disastrous  rather 
than  beneficial. 


As  a  further  step  toward  ascertaining  what  true  com- 
petition is,  as  distinguished  from  false,  carry  the  illustra- 
tion to  the  other  extreme. 

Suppose  the  bidders  get  together  and  agree  upon  the 
price  all  shall  bid,  or  agree  that  one  shall  have  the  work, 
the  others  to  either  refrain  from  bidding  or  put  in  "pro- 
tecting" bids.  Competition  is  suppressed;  the  agreements 
are  illegal. 

Between  the  two  extremes  of  bidding  in  the  dark  as 
individuals,  without  cooperation — false  competition,  and 
bidding  in  combination  an  agreed  price,  suppressed  compe- 
fion — must  be  found  the  conditions  favoring  true  com- 
petition. 

Under  false  competition  the  purchaser  has  every  ad- 
vantage over  bidders  in  the  dark;  under  suppressed  com- 
petition the  bidders  in  combination  have  every  advantage 
over  the  purchaser  who  is  in  the  dark;  under  true  com- 
petition both  deal  frankly  in  the  open  on  a  footing  of 
equality. 

To  return  to  the  illustration  first  used:  it  is  the  best 
informed  blacksmith,  carpenter  or  painter  who  gets  the 
trade  in  good  times  because  he  keeps  in  touch  with  what  is 
going  on,  with  what  his  competitors  are  doing  and  charg- 
ing, so  that  by  reason  of  his  knowledge  he  is  in  a  position 


96  THE  NEW  COMPETITION 

to  really  compete  with  them,  to  take  the  work  he  wants  at 
the  price  he  wants.  It  is  the  man  who  stays  within  the 
four  walls  of  his  shop,  who  fails  to  keep  his  ears  and  eyes 
open,  who  asks  no  questions  and  gives  no  information,  who 
bids  in  the  dark,  that  goes  to  the  wall,  or,  at  best,  makes  a 
precarious  living;  every  country  town  can  show  plenty  of 
such  men,  silent  and  envious,  melancholy  relics  of  the  old 
order  of  things. 


CHAPTER    VII 
THE   OLD    COMPETITION 

I 

Under  existing  conditions  practically  all  bids  upon  con- 
tract work  fall  into  two  classes : 

A.  Collusive — suppressed  competition. 

B.  Secret — false  competition. 

In  neither  case  is  there  any  true  competition. 

Where  bidders  conspire  together  and  agree  upon  their 
bids  either  for  the  purpose  of  exacting  an  arbitrarily  high 
price,  or  with  a  view  to  throwing  the  work  to  some  one 
bidder,  at  such  price  as  he  wishes  to  charge,  the  result  is  the 
same — suppression  of  competition. 

If  bidders  do  not  conspire  together,  but  each  prepares 
his  bid  independently  and  submits  it  sealed,  there  is  still 
no  real  competition ;  each  bidder  bids  against  his  own  fears 
and  necessities. 

The  purchaser  who  opens  the  bids  has  little  difficulty 
in  determining  whether  he  is  confronted  by  suppressed 
competition  or  false.  If  suppressed,  the  bids  will  be  sus- 
piciously alike;  while  if  the  competition  is  of  the  pseudo 
variety  the  bids  will  be  characterized  by  spreads  that  are 
ridiculous. 

As  a  matter  of  fact,  there  is  comparatively  little  col- 
lusive bidding.  Collusion  calls  for  a  large  degree  of  con- 
fidence in  one  another  on  the  part  of  the  bidders,  and  it  is 
a  familiar  fact  that  no  sooner  do  men  come  together  in 

97 


98  THE  NEW  COMPETITION 

agreements  to  suppress  competition  than  the  very  act  of 
conspiring"  tends  to  destroy  the  little  confidence  that  may 
have  existed.  Collusion  begets  distrust.  As  a  body  of 
keen  competitors  once  said:  "We  no  sooner  combine  and 
agree  upon  prices  than  it  is  a  race  to  the  telephone  to  see 
who  can  book  orders  first  at  prices  a  little  under  those 
fixed.^' 

Attempts  are  made  to  give  force  to  these  combinations 
by  depositing  large  amounts  to  be  forfeited  in  case  of  cut- 
ting, but  these  penalties  are  altogether  ineiifectual. 

Now  and  then  one  hears  of  a  "pool,"  or  combination, 
an  association  in  some  particular  trade  or  industry  that  is 
effective  and  that  has  existed  for  many  years,  but  these 
instances  are  few  indeed  in  comparison  with  the  number  of 
lines  wholly  uncontrolled,  and  where  combinations  are  suc- 
cessful in  maintaining  uniform  prices,  the  interest  of  the 
customer  is  considered  and  no  advantage  taken. 


II 


The  writer  has  in  mind  a  class  of  machinery,  the  prices 
of  which  for  many  years  have  been  established  by  joint 
action  at  the  beginning  of  each  year. 

When  the  legality  of  the  agreement  was  questioned 
the  purchasers  of  the  machinery  protested  against  the  sug- 
gestion to  restore  old  competitive  conditions;  they  said  in 
so  many  words:  "Do  not  disturb  this  association;  it  is  an 
advantage  to  us  to  have  prices  fixed  for  the  year,  and  it  is 
even  more  important  that  we  know  that  all  who  buy  pay 
the  same  price." 

Again,  in  the  case  of  a  certain  railroad  specialty,  the 
roads  much  prefer  the  sellers  should  cooperate  and  main- 
tain a  fair  price,  and  each  be  content  with  the  customers  he 
has  rather  than  slaughter  prices  in  efforts  to  extend  the 


THE  OLD  COMPETITION  99 

use  of  his  particular  device — experiments  that  usually  cost 
the  roads  far  more  in  extra  parts  and  repairs  than  any- 
possible  saving  in  price. 

It  would  not  be  difficult  to  name  article  after  article 
the  consumers  of  which  would  vote  unanimously,  if  they 
could,  that  prices  should  be  fixed  to  all  alike  and  main- 
tained for  definite  periods  without  variation. 

There  is  scarcely  a  manufacturer  who  would  not  pre- 
fer to  have  the  prices  he  pays  for  raw  material — yes,  and 
for  labor — ^fixed  from  season  to  season. 


Ill 


To  test  their  attitude  the  following  questions  were  put 
to  the  representatives  of  some  twenty  independent  and 
sharply  competing  companies  engaged  in  the  manufacture 
and  sale  of  an  output,  the  raw  material  of  which  is  steel 
as  it  comes  from  the  rolling  mill. 

"If  you  had  your  choice,  which  would  you  prefer,  to 
have  the  prices  of  the  raw  material  you  buy  fixed  from 
season  to  season,  or  have  the  power  to  combine  and  fix  the 
prices  of  what  you  sell  ?" 

"We  can  take  care  of  ourselves  if  given  a  fair  deal  by 
the  mills." 

"What  do  you  mean?" 

"That  no  rolling  mill  shall  give  one  company  an  un- 
fair advantage  over  another." 

"Explain." 

"There  is  a  market  price  for  the  steel  we  use ;  to-day  it 
is  1. 10  Pittsburg.  Everybody  is  supposed  to  be  paying 
that  price,  and  when  we  bid  most  of  us  are  compelled  to 
use  that  figure  as  a  base  in  making  our  estimates  of  cost, 
but  we  know  that  certain  companies,  closely  allied  to  the 


loo  THE  NEW  COMPETITION 

mills,  get  lower  prices;  they  get  as  low  as  i.oo,  possibly 
.90.    What  chance  is  there  for  the  rest  of  us?" 

"You  mean  you  will  have  to  go  out  of  business  if  you 
cannot  buy  your  raw  material  as  low  as  the  favored  com- 
panies ?" 

"Exactly,  they  are  selling  below  our  cost." 

"But  isn't  that  just  the  sort  of  competition  the  public 
wants  ?" 

"No,  for  it  means  monopoly  in  the  end — it  is  the  rank- 
est sort  of  competition,  and  when  we  are  driven  out  of 
business  the  public  will  pay  the  piper  for  the  fiddling." 

"Then  what  you  want  is  a  uniform  price  for  what  you 
buy?" 

"Yes,  the  same  price  to  all,  large  and  small — a  square 
deal,  no  rebates,  no  favors." 

"The  same  price  for  how  long,  a  week,  a  month,  a 
year?" 

"In  our  business  the  price  of  raw  material  should  be 
fixed  for  periods  of  not  less  than  six  months." 

"With  notice  in  advance  of  changes?" 

"Of  not  less  than  three  months." 

"These  propositions  will  strike  the  public  as  novel ;  you 
gentlemen  have  come  together  to  devise  some  way  to  im- 
prove conditions  in  your  industry;  the  natural  supposition 
on  the  part  of  the  outsider  is  that  your  first  step  will  be  to 
'fix*  the  prices  of  what  you  have  to  sell,  and  here  you  are 
demanding  that  the  rolling  mills  fix  the  prices  of  what 
you  have  to  buy." 

"Yes,  if  they  will  do  that  we  can  all  start  even  and 
compete  on  the  same  basis;  we  are  not  afraid  of  open  com- 
petition in  selling  if  no  one  has  a  secret  advantage  in  buy- 
ing." 

"But  what  you  demand  means  some  sort  of  a  combina- 
tion on  the  part  of  the  mills." 

"Yes,  and  without  some  form  of  cooperation  whereby 


THE  OLD  COMPETIJ.ION  loi 

the  same  prices  are  quoted  to  ajlliuyers^  alike,  „cojnpetijion 
is  a  farce."  ,  /'\i,,.i;'  ^•„^V\:'';  i:\ 

"That  sounds  like  a  new  proposition." 

"But  it  isn't.  All  we  ask  from  the  rolling  mills  is  the 
same  treatment  the  law  says  we  shall  have  from  the  rail- 
roads— the  same  rates  and  the  same  service  to  all,  with  no 
sudden  changes  made  to  help  one  man  or  one  locality  at  the 
expense  of  another." 


IV 


While  the  prevailing  demoralization  in  the  prices  they 
were  getting  was  a  matter  of  serious  concern,  the  usual 
remedies  by  way  of  "understandings,"  "gentlemen's  agree- 
ments," etc.,  etc.,  were  dismissed  as  inefficacious;  the  dis- 
cussion invariably  came  back  to  the  proposition  that  the 
prime  cause  of  disastrous  conditions  was  secret  and  unfair 
discrimination  on  the  part  of  those  from  whom  they 
bought. 

It  was  conceded  that  each  of  the  companies  represented 
could  make  a  good  living  in  its  own  locality  if  it  could  buy 
its  raw  material  on  the  same  basis  as  larger  companies  lo- 
cated at  a  distance,  but  if  any  large  company  had  an  "in- 
side" price  from  a  mill  on  raw  material,  then  it  had  the 
same  unfair  advantage  it  would  have  if  it  had  an  "inside" 
arrangement  with  a  railroad  on  freight — the  local  company 
is  out  of  the  running. 

It  is  not  from  collusive  bidding  and  price  fixing  that 
the  public  suffers  most,  but  from  the  secret  methods  of  the 
old,  the  false  competition. 

It  is  not  that  men  get  together  too  much,  but  that  they 
do  not  get  together  enough — and  in  the  open. 


102  THE  NEW  COMPETITION 


It  is  unfair  when  the  great  rolling  mill  gives  a  secret 
price  to  one  customer  to  enable  it  to  get  contracts  against 
competitors  who  are  charged  more  for  their  material,  but 
the  practice  is  just  as  unfair  when  the  lumber  yard  in  a 
small  town  gives  a  secret  price  to  a  favored  carpenter  to 
enable  him  to  get  work  as  against  others  who  are  charged 
regular  market  prices  for  the  lumber  they  need — and  this 
is  done  so  generally  that  it  is  often  known  which  carpenters 
are  allied  to  particular  yards. 

A  favored  contractor  is  often  in  a  position  to  make  a 
bid  at  what  the  material  costs  a  competitor,  and,  if  he  gets 
the  contract,  make  his  profit  on  the  secret  discounts  he  gets 
from  the  parties  who  supply  him. 

All  this  is  within  the  experience  of  every  man  who  has 
had  occasion  to  build  or  have  any  amount  of  work  done. 
The  "tricks  of  the  trade"  are  infinite  in  number  and  variety. 

"Sharp"  buying  is  by  no  means  confined  to  the  purchas- 
ing agent  of  the  large  corporation;  he  but  practices  sys- 
tematically what  the  farmer,  the  carpenter,  the  mechanic 
do  instinctively. 

The  farmer  who  is  about  to  build  a  barn  takes  his  bill 
of  stuff  needed  and  goes  from  lumber  yard  to  lumber  yard, 
from  mill  to  mill,  getting  prices ;  like  the  purchasing  agent, 
he  does  not  hesitate  to  say,  "I've  got  lower  figures  than 
yours,"  or,  "I  can  do  better 'n  that,"  "You're  too  high  by  a 
good  deal,"  when  he  has  no  better  prices. 

The  carpenter  does  the  same  thing,  he  plays  one  yard 
against  another  until  he  gets  a  price  below  what  the  lumber 
should  be  sold  for,  all  depending  upon  conditions  at  the 
time. 

In  some  towns  the  lumber  yards  are  shrewd  enough  to 


THE  OLD  COMPETITION  103 

meet  this  sort  of  buying  by  a  secret  agreement  to  inform 
one  another  regarding  prices  made  to  certain  contractors. 

Coal  yards  are  subjected  to  the  same  misrepresentations 
by  buyers  who  contract  for  winter  suppHes,  with  the  natural 
result  that  as  prices  are  cut  lower  and  lower  inducements  to 
give  short  weight  and  inferior  coal  multiply, 

Blame  for  false  measures,  inferior  and  adulterated 
goods  is  laid  at  the  door  of  the  maker  and  dealer,  when 
buyers  are  themselves  responsible;  they  make  it  difficult 
for  the  absolutely  honest  merchant  to  make  a  living. 

True,  in  time  a  reputation  for  squareness,  for  honesty, 
for  good  goods  at  fair  prices,  becomes  a  man's  most  valu- 
able asset,  but  it  takes  time  and  money  to  build  up  that 
reputation,  and  many  men  in  business  are  not  in  a  position 
to  wait;  unless  they  can  make  money  at  the  start  they 
must  give  up — they  are  the  ones  the  public,  by  unfair  and 
unscrupulous  buying,  literally  force  into  unfair  and  un- 
scrupulous selling. 


VI 


All  this  is  apropros  the  proposition  that  whatever  evils 
are  found  in  the  management  of  large  corporations  are  not 
peculiar  to  trusts,  but  have  their  roots  in  human  nature  and 
the  legislation  that  reaches  them  will  probe  deep. 

The  open-price  policy — explained  in  succeeding  chap- 
ters— of  the  new  competition  will  help  greatly  to  expose 
and  correct  some  of  the  more  glaring  evils. 

When  all  prices,  all  bids  are  made  openly  so  that  both 
customers  and  competitors  may  examine  and  analyze  same, 
it  will  be  exceedingly  difficult  to  hide  agreements  intended 
to  favor  some  to  the  detriment  of  others. 

Just  now  the  people  are  crying  for  "More  Competi- 
tion," what  they  want  is  more  cooperation.  Competition 
has  run  mad,  it  is  responsible  for  nine-tenths  of  the  eco- 


I04  THE  NEW  COMPETITION 

nomic  abuses  that  exist,  it  is  responsible  for  the  trusts 
themselves;  it  was  the  old  "cut-throat"  competition,  with 
its  countless  secret  practices,  that  gave  the  Standard  Oil 
Company  its  opportunity.  It  was  the  threat  by  the 
Carnegie  Company  of  still  more  drastic  and  relentless  com- 
petition that  led  to  the  formation  of  the  U.  S.  Steel  Cor- 
poration. 

It  would  be  difficult  to  point  to  a  trust  that  did  not  have 
its  birth  in  competition  so  merciless  that  combination  seemed 
the  only  way  out. 


CHAPTER   VIII 
THE   NEW   COMPETITION 


The  basis  of  the  old  competition  is  secrecy,  the  strength 
of  the  new  is  knowledge;  the  essence  of  the  old  is  deceit, 
the  spirit  of  the  new  is  truth.  Concealment  characterizes  all 
the  dealings  of  the  old;  frankness  is  vital  to  the  new. 

The  old  looks  with  suspicious  eye  on  all  associations 
and  combinations;  without  cooperation  the  new  is  im- 
possible. 

II 

Suppose  all  the  carpenters  in  a  place,  instead  of  acting 
as  jealous  and  independent  units,  meet  weekly  in  an  asso- 
ciation, the  sole  object  of  which  is  the  frank  interchange 
of  information. 

Suppose  they  disclose  and  discuss  freely: 

1.  Every  element  that  enters  into  the  cost  of  their 
work. 

2.  Work  in  hand,  the  terms  and  conditions  upon  which 
it  is  being  done. 

3.  Work  in  prospect ;  all  requests  for  bids,  with  frank 
interchange  of  information  regarding  such  proposed  work, 
and  the  conditions  under  which  it  must  be  done. 

4.  All  bids  actually  made  on  work. 

5.  Conditions  affecting  their  general  welfare. 

105 


io6  THE  NEW  COMPETITION 

Such  an  association  implies  a  degree  of  frankness  here- 
tofore unknown  in  the  industrial  world,  but  a  condition 
toward  which  the  industrial  world  is  progressing.  So  long 
as  its  members  enter  into  no  agreement  to  fix  prices  or 
control  competition,  the  legality  of  such  an  association 
could  hardly  be  questioned. 

The  effect  of  competition  under  such  open  and  straight- 
forward conditions  would  be  stability  of  prices  at  normal 
levels.  Competing  in  the  open  with  full  knowledge  of  all 
the  conditions  influencing  others,  no  man  would  make  a 
ruinously  low  price  or  an  arbitrarily  high  one.  The  com- 
petition would  be  real,  keen  and  healthful.  Prices  would 
vary,  but  they  would  not  vary  widely;  men  needing  work 
would  bid  to  get  it ;  others  with  plenty  of  work  would  not 
try ;  in  dull  times  prices  would  approach  cost,  but  the  educa- 
tional value  of  the  association  would  tend  to  deter  ruinous 
bidding;  open  criticism  of  work  inefficiently  done  would 
expose  the  tricky  bidder. 

As  there  would  be  no  secrecy  about  such  an  association, 
the  public  would  understand  its  workings ;  customers  would 
reap  the  benefits  of  true  competition,  and,  at  the  same  time, 
lose  the  unfair  advantages  of  false. 


Ill 


Every  town  should  have  its  Industrial  Exchange,  a  place 
of  meeting  for  all  trades,  and  every  contractor  in  all  lines 
of  work  should  be  a  member  of  this  exchange. 

In  larger  cities  the  exchange  would  have  as  many  dif- 
ferent sections  as  there  are  different  trades,  each  section 
with  its  own  headquarters  or  room  for  meeting.  There 
would  be  no  hard  and  fast  lines,  no  barriers  of  antagonism, 
of  jealousy  and  distrust.  The  competition,  the  rivalry, 
would  be  friendly  and  open. 


THE  NEW  COMPETITION  107 

While  general  contractors  would  have  their  own  sec- 
tion, they  would  also  participate  more  or  less  in  the  de- 
liberations of  all  the  sections  in  which  they  were  inter- 
ested, and  there  should  be  no  rule  that  would  deter  mem- 
bers of  any  section  from  attending  the  meetings  of  an- 
other, or  from  participating  in  such  meetings  if  they  de- 
sired. 

Divisions  into  sections  and  the  meeting  of  each  on  its 
own  day  would  be  for  convenience  only,  and  not  to  draw 
any  line  of  separation.  In  a  small  town  it  might  be  more 
convenient  for  all  trades  to  meet  together  one  evening  a 
week  and  discuss  all  matters  in  open  meeting. 

A  representative  central  body  would  govern  with  a 
light  hand  in  an  advisory  rather  than  an  arbitrary  manner. 
Coercion  should  not  be  used,  and  no  rule  adopted  to  con- 
trol individual  action  and  initiative — other  than  the  one 
rule  of  reporting  all  bids  and  prices;  that  would  be  the 
basis  of  the  Exchange. 

These  details  are  more  fully  discussed  in  the  chapter 
on  Open  Price  Associations,  but  they  are  briefly  mentioned 
here  because  it  is  important  to  call  the  attention  of  the 
labor  world  and  of  small  contractors  to  the  advantages  of 
such  associations. 

In  addition  to  labor  unions  there  are  now  in  existence 
Builders*  Exchanges  and  organizations  of  manufacturers 
and  employees  generally,  but  they  operate  in  a  spirit  of  an- 
tagonism and  under  conditions  of  secrecy;  each  meets  be- 
hind closed  doors;  hardly  any  two  would  be  willing  to 
come  together  and  discuss  fully  all  matters  that  concerned 
them. 

These  organizations  can  be  readily  transformed  into 
open  price  associations,  but  the  change  would  be  a  revolu- 
tion— a  revolution  in  methods  and  a  revolution  in  rela- 
tions. 

The  experiment  is  worth  trying,  on  this  hypothesis,  if 


io8  THE  NEW  COMPETITION 

no  other,  present  conditions  of  distrust  and  antagonism, 
of  bitter  and  disastrous  competition,  could  not  be  any  worse, 
then  why  not  try  a  plan  that  at  least  promises  freer  inter- 
course and  more  friendly  cooperation? 

Keep  in  mind  the  goal  to  be  reached  is  a  central  ex- 
change, so  open,  so  public  that  labor,  employers,  customers 
will  resort  to  it  for  information  regarding  work,  wages, 
prices  and  all  conditions  affecting  every  trade  and  industry 
represented. 

Carried  to  its  final  realization  and  perfection  every  per- 
son working  for  wages — man,  woman,  or  child — would  be 
registered  together  with  conditions  of  employment.  This 
alone  would  do  more  to  correct  the  evils  of  child  and 
woman  labor  than  all  the  laws  the  State  can  pass.  Pub- 
licity is  the  greatest  corrective  agent  known  to  society. 

Every  contract  for  work  or  material  would  be  regis- 
tered; prices  of  material  would  be  filed  from  day  to  day; 
there  would  be  no  secret  rebates  and  discounts,  no  unfair 
preferences;  in  the  open  debates  and  opportunities  for  sharp 
questioning  there  would  be  no  chance  for  concealment. 

Customers  would  have  opportunities  to  come  in  and 
make  their  complaints  regarding  both  charges  and  char- 
acter of  work  done. 

The  public  would  be  free  to  avail  itself  of  the  infor- 
mation afforded  by  the  association,  for  it  would  be  in  the 
best  sense  of  the  term,  a  public  body,  a  representative  body, 
more  vital  to  the  welfare  of  the  town  than  the  Common 
Council  or  Board  of  Aldermen. 

The  development  of  the  idea  to  such  a  degree  of  per- 
fection may  be  a  far  look  ahead,  but  there  is  no  reason 
why  there  should  not  be  a  beginning,  why  small  associa- 
tions should  not  be  formed  along  the  lines  suggested,  why, 
for  instance,  the  carpenters  and  building  contractors  in  a 
town  should  not  get  together  in  a  frank  and  open  way  to 
exchange  information. 


THE  NEW  COMPETITION  109 

The  medieval  guilds  were  supremely  selfish  in  their  ob- 
jects, and  had  very  little  in  common  with  the  new  ideas, 
but  they  prove  the  strong  tendency  inherent  in  man  to  co- 
operate, and  there  is  no  reason  why  they  should  not  be 
revived  in  other  and  better  forms,  there  is  no  reason  why 
the  trades  of  a  locality,  the  industries  of  a  country,  even 
the  industries  of  the  world,  should  not  be  grouped  each  in 
its  special  organization.  There  is  no  reason  why  cordial, 
friendly  and  genuinely  social  cooperation  should  not  take 
the  place  of  vicious,  vindictive  and  unfriendly  competi- 
tion. There  is  no  reason  why  a  desire  that  all  should  pros- 
per should  not  take  the  place  of  the  present  hope  that  all 
but  self  shall  fail.  There  is  no  reason  why  industrial  peace 
should  not  take  the  place  of  industrial  war. 


IV 


It  is  almost  needless  to  point  out  that  the  danger  ahead 
of  such  frank  and  friendly  cooperation  is — as  the  law  now 
stands  in  this  country — the  agreement  that  suppresses  com- 
petition. 

Given  an  association  in  any  trade  or  industry  based 
upon  the  single  agreement  to  exchange  information  there 
would  be  the  temptation  for  groups  of  members  to  agree 
upon  their  bids,  to  apportion  work  and  so  secure  for  the 
time  being  arbitrarily  high  profits  by  suppressing  compe- 
tition— a  policy  that  always  "kills  the  goose  that  lays  the 
golden  tggJ' 

But  this  temptation  to  go  wrong  is  inherent  in  every 
movement  toward  perfection ;  it  must  be  recognized  and  re- 
sisted; it  is  no  argument  against  systematic  effort  toward 
the  establishment  of  better  conditions. 

At  present  men  are  possessed  with  the  idea  that  the 
moment  they  are  brought  together  in  any  sort  of  an  as- 


no  THE  NEW  COMPETITION 

sociation  they  must  arbitrarily  advance  prices.  If  they 
will  do  precisely  the  reverse,  namely,  encourage  true  com- 
petition, leaving*  each  man  theoretically  and  practically  free 
to  quote  such  prices  as  he  pleases  and  to  change  them  as 
he  pleases,  prices  and  profits  will  take  care  of  themselves; 
they  will  be  normal  and  reasonably  constant. 

It  should  be  again  noted  that  in  the  labor  world  the 
unions  do  many  of  the  things  suggested,  they  gather  and 
spread  information  regarding  conditions  of  employment,  so 
that  even  the  ignorant  immigrant  is  quickly  told  the  hours 
he  should  work  and  the  wages  he  should  get;  but  in  at- 
tempting to  arbitrarily  fix  hours  and  wages  the  unions 
check  individual  initiative  and  suppress  competition.  The 
strength  of  the  labor  movement  lies  in  the  element  of  co- 
operation; its  weakness  in  the  element  of  repression.  If 
it  is  right  and  legal  for  an  association  of  laborers  to  ar- 
bitrarily fix  wages,  it  is  equally  right  and  legal  for  an 
association  of  employers,  who  are  compelled  to  pay  the 
wages,  to  fix  prices — the  truth  is  that  in  both  cases  com- 
petition may  be  suppressed,  but  not  necessarily,  for  the 
regulation  of  wages  and  prices  from  time  to  time  may  be 
not  only  beneficial  but  essential  to  the  development  of  true 
competition.  The  public  recognizes  the  fact  that  wide 
fluctuations  in  wages  are  an  evil,  but  it  does  not  yet  see 
that  wide  fluctuations  in  prices  are  equally  bad. 


The  retail  trade  in  this  country  is  on  a  vastly  better 
basis  than  the  manufacturing.  America  led  the  world  in 
the  one-price  policy.  Even  in  country  villages  customers 
know  that  it  would  be  useless  to  "dicker,"  to  "bargain"  in 
the  retail  stores.  The  prices  are  fixed;  they  may  be 
changed  any  day,  but  if  changed  they  are  plainly  marked 


THE  NEW  COMPETITION  iii 

and  changed  to  all ;  no  clerk  has  power  to  make  the  slight- 
est reduction;  if  the  proprietor  should  do  so,  it  would  cost 
him  his  reputation  and  his  trade.  Shops  with  two  prices 
are  run  by  a  class  of  more  than  doubtful  standing. 

As  the  traveler  approaches  the  Orient  he  leaves  behind 
the  "one-price-plainly-marked"  system;  he  enters  cities 
where  no  shopkeeper  expects  to  get  what  he  first  asks  and 
every  trade  is  a  trial  of  wits. 

In  retail  trade  a  merchant  may  go  through  the  estab- 
lishment of  a  competitor,  examining  goods  and  noting 
prices;  often  the  prices  of  large  classes  of  goods  are  pub- 
lished in  advertisements  each  morning.  With  full  informa- 
tion people  trade  where  they  like,  many  going  to  stores 
where  they  know  prices  are  higher  rather  than  to  others 
justly  famous  for  their  very  "real"  bargains.  The  ex- 
travagantly high-priced  shop  on  Fifth  Avenue  holds  its 
own  against  the  seller  of  goods  just  as  good  on  the  side 
street. 


VI 


The  secret  price  has  fallen  into  disrepute  in  America 
and  England.  It  has  been  abandoned  by  the  best  dealers 
on  the  Continent,  though  even  in  Paris  there  are  compara- 
tively few  places  where  one  is  absolutely  sure  the  price 
asked  is  the  only  price ;  offers  bring  responses  and  there  is 
a  pretty  general  conviction  that  tourists  pay  more  than 
natives. 

In  the  most  reliable  places  of  business  in  this  country 
goods  are  marked  in  plain  figures,  and  both  customers  and 
competitors  are  free  to  note  and  use  these  figures.  Here 
and  there  a  perfectly  reliable  merchant  clings  to  the  old 
habit  of  marking  the  price  in  cipher.  Why  ?  It  would  be 
difficult  to  say,  since  his  cipher  is  known  to  every  employee, 
to  every  competitor  who  cares  to  give  the  matter  ten  min- 


112  THE  NEW  COMPETITION 

utes*  investigation,  and  to  every  bright  customer  who  prices 
a  dozen  articles  and  compares  the  letters  that  stand  for  the 
figures.  The  cipher  is  a  relic  of  the  old  furtive  policy,  and 
is  bound  to  go;  customers  resent  it  because  they  are  be- 
coming accustomed  to  plain  marks  and  distrust  the  man 
who  looks  at  a  few  cryptic  letters  and  says  the  price  is  so 
and  so— if  it  really  is  so  and  so,  why  not  mark  it  for  every- 
body to  read?  Why  make  a  confidant  of  every  cash-girl 
and  alienate  every  customer? 

In  the  manufacturing  and  contracting  world  the  old, 
discredited  policy  prevails.  Manufacturers  and  contractors, 
large  and  small,  still  do  business  on  a  par  with  the  wily 
Oriental.  Each  is  mortally  afraid  his  competitor  will  find 
out  what  he  is  doing;  nearly  all  have  as  many  prices  as 
they  have  customers;  they  ask  one  figure,  but,  like  the 
Oriental,  are  ready  to  take  almost  anything  offered.  Pur- 
chasers know  this,  so  it  is  not  surprising  that  ordinary 
transactions  are  attended  by  unscrupulous  representations. 

From  the  president  down  to  the  least  important  sales- 
man everybody  is  clothed  with  "discretion,"  everybody  can 
"make"  or  "shade"  a  price;  if  a  list  is  published  no  one 
expects  to  get  the  prices  therein  named,  there  is  always  a 
discount,  and  discounts  upon  discounts,  with  a  further  con- 
cession for  cash,  or  an  added  inducement  in  terms,  and  so 
on  endlessly,  depending  upon  the  resourcefulness  of  the 
salesman,  the  flexibility  of  the  employer  and  their  desire 
to  "land  the  order." 

The  buyer  is  never  certain  when  the  last  word  is  said, 
even  after  the  contract  is  closed  he  has  the  feeling  he  might 
have  done  better  if  he  had  held  off  a  little  longer — it  is 
all  a  gamble,  and  demoralizing  to  everyone  concerned. 

No  men  should  have  more  respect  for  their  calling  or 
stand  higher  in  the  commercial  world  than  the  able  repre- 
sentatives of  great  manufacturing  and  contracting  com- 
panies, but — ^judging  from  what  they  themselves  say  of  one 


THE  NEW  COMPETITION  113 

another — few  men  command  so  little  confidence  in  their 
own  circles  as  successful  salesmen.  This  is  the  fault  of 
the  system. 


VII 


It  is  the  aim  of  the  New  Competition  to  change  the 
conditions  which  produce  these  results,  to  establish  the 
trade  of  manufacturing  goods  on  the  same  sound  and 
straightforward  basis  as  the  trade  of  retailing  them,  and 
the  fundamental  step  is  the  adoption  of  the  Open  Price 
Policy. 

There  is  no  reason  why  the  American  manufacturer 
should  not  do  business  as  the  American  merchant  does, 
why  he  should  not  throw  his  shop  open  to  customers  and 
competitors,  why  he  should  not  mark  everything  he  makes 
in  plain  figures  and  let  everybody  know  what  those  figures 
are,  changing  them  as  he  pleases,  but  changing  them  to  all 
alike,  making  such  discounts  as  he  pleases  on  large  orders, 
but  making  them  openly. 

Manufacturers  suffer  the  disadvantage  that,  for  the  most 
part,  they  are  widely  scattered,  each  more  or  less  influenced 
by  his  locality,  and  almost  all  look  upon  one  another  with 
ill-disguised  hostility. 

The  first  step  toward  the  development  of  the  new  com- 
petition in  any  given  industry  is  to  bring  the  hostile  units 
together,  make  them  acquainted,  allay  their  distrust,  induce 
them  to  abandon  the  played-out  policy  of  secrecy,  and  to 
agree  to  exchange  information  along  the  lines  enumerated 
— in  short,  to  do  business  on  a  frank  and  straightforward 
basis. 

To  the  small  or  the  isolated  manufacturer  this  sort 
of  cooperation  is  of  far  greater  importance  than  to  the 
large  concern  centrally  located.     In  many  industries  the 


114  THE  NEW  COMPETITION 

time  is  at  hand  when  the  small  producer  will  be  able  to 
exist  only  in  cooperation  with  the  large. 

The  new  competition  helps  the  small  producer  by  giv- 
ing him  the  benefit  of  information  and  valuable  data  pos- 
sessed by  the  large;  it  shows  him  where  he  can  rightfully 
and  successfully  compete,  it  marks  out  the  field  that  is 
legitimately  his. 

VIII 

It  is  not  easy  to  get  rival  manufacturers  to  agree  to  file 
for  the  benefit  of  all  interested  the  bids  and  prices  they 
make,  but  it  has  been  tried,  and  the  new  competition  works 
better  than  the  old. 

It  is  not  easy  to  make*  men  who  have  habitually  re- 
ferred to  competitors  as  rascals  and  liars  admit  that  they 
are  not — but  it  has  been  done,  and  herein  is  the  new  com- 
petition better  than  the  old. 

It  is  not  easy  to  persuade  men  that  bidding  below  cost 
to  beat  a  competitor  is  poor  policy,  but  it  has  been  demon- 
strated, and  in  this  respect  the  new  competition  is  better 
than  the  old. 

It  is  not  easy  to  convince  courts  and  legislatures  that 
rivals  in  the  same  trade  or  industry  can  get  together  with- 
out entering  into  illegal  agreements,  but  they  do,  and  that 
is  another  of  the  good  results  of  the  new  competition. 


CHAPTER   IX 
THE   OPEN-PRICE   POLICY 

I 

The  basis  of  the  new  competition  is  the  open-price 
policy. 

II 

What  is  meant  by  an  ^'open"  price? 

Exactly  what  the  word  signifies,  a  price  that  is  open 
and  aboveboard,  that  is  known  to  both  competitors  and  cus- 
tomers, that  is  marked  wherever  practicable  in  plain  figures 
on  every  article  produced,  that  is  accurately  printed  in  every 
price  list  issued — ^a  price  about  which  there  is  no  secrecy,  no 
evasions,  no  preferences.  In  contract  work  it  means  that 
every  bid  made  and  every  modification  thereof  shall  be 
known  to  every  competitor  for  the  order;  it  means  that 
even  the  cunning  and  unscrupulous  competitor  may  have 
this  information.  In  short,  the  open-price  policy  means  a 
complete  reversal  of  methods  now  in  vogue. 

Many  strongly  established  manufacturers  who  make  a 
practice  of  adhering  quite  closely  to  their  prices  will  say, 
"Why  that  is  what  we  are  doing  now."  A  dozen  search- 
ing questions  will  convince  them  they  are  not,  and  a  half 
dozen  crucial  propositions  to  reform  their  methods  along 
the  new  lines  will  lead  a  goodly  number  of  them  to  settle 
back  in  their  chairs  and  say,  "No,  no,  that's  too  advanced 

115 


ii6  THE  NEW  COMPETITION 

for  us."  The  writer's  experience  has  been  that  the  men 
who  are  loudest  to  insist  they  follow  the  open-price  policy- 
are  the  last  to  adopt  it.  What  they  want  is  a  ''fixed"'  price 
policy. 

Ill 

The  secret  price  is  the  mark  of  the  old — false  competi- 
tion. 

The  fixed  price  is  the  mark  of  the  illegal  combination — 
suppressed  competition. 

The  open  price  is  the  mark  of  the  new— true  competi- 
tion. 

IV 

The  secret  price  must  go,  it  has  had  its  day,  it  does  not 
belong  to  the  twentieth  century,  it  is  part  of  the  old  order 
of  things  that  is  giving  way  to  the  new. 

Men  are  just  beginning  to  learn  that  it  is  easier  to  make 
money  by  straightforward  methods  than  by  devious,  that 
truth  is  a  commercial  asset. 

Before  the  days  of  steam  and  electricity  men  had  plenty 
of  time  for  lying.  The  slower  the  means  of  communica- 
tion the  greater  the  opportunity  for  deception — a  letter  is 
an  exacse;  a  telegram  an  answer;  a  telephone  a  fact. 

Many  a  man  declines  to  use  the  telephone  because  it  is 
devoid  of  opportunity.  Many  a  woman  exclaims  in  annoy- 
ance, "Why  did  she  invite  me  over  the  phone?  I  just  had 
to  accept.    I  could  not  think  of  a  thing  to  say." 

More  business  is  done  to-day  by  word  of  mouth  than 
ever  before.  Men  have  no  time  to  make  contracts,  draw 
up  memoranda,  call  in  lawyers;  it  is  "yes"  and  "no,"  and 
millions  change  hands. 

In  the  great  world  of  finance,  of  stock  aTid  grain  deal- 
ings, of  big  transactions  rarely  does  a  man  "go  back  on  his 


THE  OPEN-PRICE  POLICY  117 

word/'     When  he  does  his  reputation — his  biggest  com- 
mercial asset — is  gone  forever. 

Were  it  not  for  this  confidence  it  would  be  impossible 
to  transact  more  than  a  tithe  of  the  business  done  in  any  of 
our  great  cities.  Men  who  are  known  to  be  devoid  of  in- 
tegrity in  other  directions  keep  their  word  in  financial  and 
commercial  matters  for  the  same  reason  they  keep  their 
credit  good — it  pays. 


Truth  is  a  labor-saving  device. 

The  open  price  is  a  labor-saving  device. 

The  secret  price  is  cumbersome  and  ineffective. 

When  each  merchant  ran  his  own  stall  and  made  a  sale 
or  two  a  day  the  secret  price  was  a  part  of  his  calling,  it 
gave  him  his  opportunity,  it  was  his  recreation,  it  roused 
him  from  his  lethargy  and  sharpened  his  wits,  it  was  the 
life  of  the  bazaar;  mark  prices  in  plain  figures  and  the 
merchant  goes  home  and  leaves  his  goods  in  charge  of  a 
boy. 

As  trade  increased  and  the  merchant  was  obliged  to  em- 
ploy others  to  help  sell,  some  sort  of  a  price  became  nec- 
essary, not  a  fixed  price,  not  a  price  that  could  not  be 
"shaded"  to  the  shy  customer — Oh!  no.  But  some  price 
that  would  guide  the  salesman  in  his  extortions.  This  price, 
together  with  other  useful  information  regarding  a  hypo- 
thetical cost  below  which  the  salesman  should  not  go,  was 
marked  in  cryptic  figures  on  the  article. 

That  was  the  next  step,  and  the  double  marking  survives 
to  this  day  in  some  of  our  best  shops.  Some  mark  both 
cost  and  price  in  cipher,  others  mark  the  price  in  plain  fig- 
ures, but  the  cast  in  cipher ;  still  others  mark  only  the  price 
and  in  plain  figures — three  steps  toward  the  one-price  cus- 
tom. 


ii8  THE  NEW  COMPETITION 

The  advance  has  been  due  less  to  any  deliberate  inten- 
tion to  do  what  is  right  and  fair  by  customers  than  to  neces- 
sity; the  retail  trade  has  developed  to  such  an  extent  that 
the  merchant  himself  needs  the  protection  of  the  one-price- 
plainly-marked  system  to  enable  him  to  do  the  amount  of 
business  he  does. 

The  manufacturing  world  has  just  about  reached  a  stage 
of  development  where  it,  too,  needs  the  one  price  system 
for  identically  the  same  reasons — self-protection  and  to  ex- 
pedite trade. 

VI 

There  is  not  a  word  to  be  said  for  the  secret  price  save 
that  it  has  long  been  a  custom — and  that  is  not  in  its  favor. 

Why  should  not  one  man  know  what  another  pays  for 
an  article? 

"Because  it*s  none  of  his  business,"  some  one  says. 

But  if  a  farmer  is  about  to  buy  a  plow  or  a  reaper  is  it 
not  of  interest  for  him  to  know  what  his  neighbor  paid  for 
the  same  implement?  If  he  is  charged  one  price  and  his 
neighbor  another  is  it  not  the  business  of  both  to  find  out 
the  facts? 

If  you  are  a  merchant  is  it  not  of  the  utmost  concern 
that  you  should  know  whether  you  are  paying  more  or  less 
for  your  goods  than  your  competitor  next  door? 

If  you  are  a  jobber  does  not  your  existence  depend  upon 
your  getting  what  you  handle  at  least  as  cheap  as  other 
jobbers? 

From  the  point  of  view  of  the  buyer,  whether  consumer, 
retailer,  or  jobber,  the  secret  price  is  an  evil;  only  those 
buyers  favor  it  who  cunningly  think  they  get  better  terms 
than  others. 

It  is  the  business  of  every  buyer  to  find  out,  if  he  can, 
what  others  pay;  that  is  the  secret  of  good  buying.    Any 


THE  OPEN-PRICE  POLICY  119 

fool  can  pay  what  he  is  asked ;  it  takes  a  clever  man  to  pay 
what  the  other  fellow  is  asked,  or  less. 


VII 


The  secret  price  must  go,  because 

It  is  opposed  to  the  'Vapid  fire"  business  methods  of 
to-day. 

It  is  a  cloak  for  fraud,  deceit,  and  unfair  discrimination. 
It  fosters  distrust  between  seller  and  buyer. 
It  is  of  no  advantage  to  either  seller  or  buyer. 


VIII 


When  the  proposition  is  laid  down  that  "the  fixed  price 
is  the  mark  of  the  illegal  combination — suppressed  com- 
petition"— it  is  so  generally  true  that  it  might  be  left  with- 
out comment,  but  it  is  not  invariably  true. 

Under  the  old  competition,  with  its  secret  prices,  cuts, 
rebates,  etc.,  etc.,  when  a  buyer  is  suddenly  confronted  by 
more  or  less  uniform  prices,  cessation  of  rebates,  discounts, 
etc.,  he  knows  that  competition  has  been  suppressed  in  some 
manner  and  he  looks  for  the  combination ;  nine  timec  out  of 
ten  where  the  change  in  terms  is  sudden  the  combination 
exists. 

But  where  conditions  in  any  given  trade  or  industry  im- 
prove gradually  as  the  natural  result  of  the  adoption  of 
franker  and  more  straightforward  methods  prices  tend  to 
become  uniform  without  concerted  action. 

Price  storms,  like  wind  storms,  tend  to  subside — but 
also  to  blow  up  again.  Violent  fluctuations  are  abnormal 
and  destructive.  If  subjected  to  no  outside  influences  prices 
in  every  industry  seek  and  find  their  levels.    Prices  are  not 


I20  THE  NEW  COMPETITION 

"fixed"  in  the  active  sense  of  the  verb,  but  they  become 
stable  as  the  result  of  normal  conditions. 

In  rare  instances  they  may  become  and  remain  for  a 
time  so  stable  they  bear  all  the  ear-marks  of  being  ''fixed/* 
but  they  are  not ;  there  has  been  no  agreement,  no  combina- 
tion. 

Where  prices  are  stable,  in  a  normal  sense,  it  is  nearly 
always  in  those  industries  where  each  competitor  knows 
what  others  ask  and  each  refrains  instinctively  from  cutting 
because  he  knows  if  one  cuts  all  will;  the  industry  has 
probably  been  through  more  than  one  disastrous  trade  war 
and  is  ever  on  the  brink  of  another. 

"Fixed"  prices  in  this  sense — stable — are  due  to  the  ex- 
tent to  which  the  open  price  prevails. 

The  more  open  the  price  the  stronger  the  tendency  to- 
ward stability  and  that,  too,  without  combination.  The 
open  quotations — prices — of  stock  exchanges  support  our 
theory. 

But,  while  many  long  established  industries — especially 
those  controlled  by  a  few  conservative  and  well  managed 
companies — have  worked  toward  more  or  less  openness  and 
frankness  in  quoting  prices  and  gained  corresponding  ad- 
vantages in  the  way  of  greater  stability  in  prices,  the  condi- 
tion is  not  one  of  any  degree  of  permanence ;  it  rests  on  no 
well  defined  policy;  its  sole  basis  is  fear  of  a  trade  war,  a 
fear  that  is  apt  to  yield  to  the  pressure  of  "hard  times." 


IX 


The  open  price  policy  of  the  new  competition  is  a  policy 
that  demands  concerted  action  for  its  adoption  and  promo- 
tion. 

It  has  taken  the  retail  trade  a  century  to  grow  into  the 
one-price-plainly-marked  policy.     Even  now  its  advantages 


THE  OPEN-PRICE  POLICY  121 

are  not  fully  recognized.  The  policy  was  not  worked  out  as 
a  great  economic  step.  Merchants  adopt  it  or  not,  as  they 
please,  and  to-day  the  general  impression  is  that  the  matter 
is  wholly  a  question  for  the  individual  dealer  to  decide  for 
himself — if  he  thinks  it  pays  he  uses  it,  otherwise  he  sticks 
to  the  secret  price — an  irrational  mode  of  doing  business. 

Enough  has  been  said  to  show  that  the  issue  between 
the  secret  price  and  the  open  is  both  economic  and  ethical. 
The  secret  price  is  wasteful  and  wrong,  the  open  price  is 
saving  and  right. 

That  being  true,  the  adoption  of  the  open  price  should 
not  be  left  entirely  to  the  whim  of  the  dealer.  There  are 
two  large  classes  as  vitally  interested  in  his  action  as  he  is 
himself — other  dealers  and  all  his  and  their  customers. 

The  dealer  or  manufacturer  who  asserts  his  right  to 
quote  secretly  such  prices  as  he  pleases  asserts  his  right  to 
demoralize  a  trade  as  he  pleases ;  that  right  does  not  exist; 
he  is  a  trade  anarchist. 

In  even  the  retail  trade  it  would  be  possible  to  promote 
the  systematic  adoption  of  the  open  price  policy  by  con- 
certed action;  customers  should  insist  upon  it;  dealers 
should  form  associations  to  develop  it;  eventually  the  law 
should  aid  it 

The  growth  of  large  establishments,  the  almost  infinite 
number  of  sales  by  salesgirls  and  salesmen  to  whom  it 
would  be  impossible  to  give  any  discretion  regarding  prices 
— these  are  the  conditions  that  have  brought  about  the  use 
of  the  one-price  system  in  the  retail  trade.  The  big  mer- 
chants could  not  conduct  their  business  on  any  other  basis. 
The  little  have  followed  because  compelled. 

To  a  certain  extent  the  same  forces  are  operating  in 
the  manufacturing  world.  Establishments  are  becoming  so 
large,  salesmen  so  numerous,  that  more  or  less  fixed  rules 
regarding  prices  and  discounts  must  be  adopted,  otherwise 
agents  and  salesmen  quote  in  opposition  to  one  another.    It 


122  THE  NEW  COMPETITION 

requires  no  little  ingenuity  on  the  part  of  the  manage- 
ment of  a  large  corporation  to  keep  its  own  agents  in  line ; 
if  a  price  is  changed  all  must  be  notified. 

But,  while  there  is  a  certain  tendency  toward  more  open 
prices,  the  tendency  is  so  feeble  and  confined  within  such 
narrow  limitations  that  little  progress  will  be  made  without 
concerted  action. 

The  advantages  of  the  open  price  policy,  as  a  policy,  as 
a  definite  economic  method^  must  be  recognized  and  its 
systematic  adoption  urged. 


The  interest  of  the  public  must  be  aroused  to  the 
ethical  significance  of  the  step,  to  its  Tightness,  its  fairness. 

Manufacturers  and  contractors  must  be  convinced  of  its 
economic  significance,  its  value  as  a  labor-saving  device,  its 
natural  influence  upon  stability  of  prices. 

In  retail  trade  the  open  price  may  prevail  to  a  certain 
degree  by  the  mere  marking  of  goods  in  plain  figures,  but 
in  the  manufacturing,  and  especially  the  contracting,  world, 
where  orders  and  contracts  are  for  products  to  be  made  and 
work  to  be  done,  no  system  of  marking  prices  can  be  util- 
ized ;  an  entirely  diflFerent  method  must  be  adopted  if  prices 
are  to  be  open. 

Cooperation  in  the  form  of  open  price  associations  is 
necessary. 


CHAPTER   X 
OPEN-PRICE   ASSOCIATION 

I 

In  these  days  of  uncertainty  regarding  the  law  it  is  not 
uncommon  to  hear  men  say, 

*'We  have  a  little  association,  but  we  never  talk 
about  prices." 

"Then  why  do  you  meet  ?'' 

"Oh,  just  to  lunch  and  talk  over  things  generally." 

"You  don't  agree  upon  prices  ?" 

"No,  sir  r 

"You  meet  for  the  fun  of  the  thing?" 

"That's  about  it." 

"Some  of  you  travel  a  thousand  miles  once  a  month 
just  for  the  pleasure  of  lunching  together  ?" 

"Um — m — ,  well,  you  might  put  it  that  way." 

Such  child-like  pretenses  deceive  no  one,  and  no  self-re- 
specting lawyer  would  permit  clients  to  make  such  futile 
statements  to  a  court. 


II 


It  is  almost  as  common  to  hear  men  say,  "We  have  an 
association,  but  we  don't  agree  upon  prices." 

"What  do  you  do?" 

"Why,  I  get  up  and  say,  'My  price  is  so  and  so';  and 
the  others  get  up  and  say  their  prices  are  so  and  so." 

123 


124  THE  NEW  COMPETITION 

"And  the  result  is,  the  price  of  everybody  is  *so  and 
so'/' 

"Naturally,  but  we  don't  agree  they  shall  be,  we  just 
exchange  views  and  let  prices  take  care  of  themselves." 

This  set  of  men  is  much  franker  than  the  former.  They 
do  admit  they  come  together  to  help  conditions,  that  they 
freely  discuss  prices,  and,  so  long  as  there  is  no  agreement 
fixing  prices  or  otherwise  suppressing  competition,  their  ac- 
tion is  probably  legal  even  though  as  the  result  of  their  in- 
terchange of  information  prices  are  more  or  less  constant; 
but  the  danger  lies  in  the  argument  that  the  several  state- 
ments that  "My  price  is  so  and  so"  amount  to  indirect 
promises  or  moral  assurances  that  the  prices  named  will  not 
be  changed,  and  this  indirect  or  moral  obligation  may*  be 
inferred  from  results. 

To  go  a  step  further — it  probably  would  not  be  illegal 
for  men  to  meet  in  good  faith  and  compare  costs  and  prices 
for  the  purpose  of  preventing,  if  possible,  disastrous  compe- 
tition and  of  getting  reasonable  returns  for  their  products, 
but  to  what  extent  such  frank  and  straightforward  efforts  to 
do  only  what  is  reasonable  and  fair  from  a  sound  business 
point  of  view  will  be  held  legal  in  this  country  depends  upon 
the  application  the  courts  may  make  of  the  general  prin- 
ciples laid  down  in  the  Standard  Oil  and  Tobacco  cases.  ^ 

However,  no  man  whose  aim  in  life  is  to  bear  himself 
creditably  among  his  fellows  cares  to  split  hairs  with  the 
law,  to  take  any  chances  on  a  court's  decision  as  to  whether 
his  acts  are  "reasonable"  or  "unreasonable." 

*In  a  bill  filed  last  year  (iQii),  to  dissolve  a  certain  "pool,"  the 
members  of  which  met  periodically  to  discuss  prices  and  trade  condi- 
tions, the  Government  said :  "It  is  not  here  alleged  that  merely  assem- 
bling and  mutually  exchanging  information  and  declaration  of  purpose 
amount  to  an  agreement  or  a  combination  in  restraint  of  trade." 


OPEN-PRICE  ASSOCIATION  125 


III 


Until  the  law  is  changed  the  one  safe  course  is  to  have 
nothing  to  do  with  any  conference  or  association  the  ob- 
jects of  which  are  not  clearly  expressed  in  black  and  white, 
and  the  proceedings  of  which  are  not  fully  preserved. 

If  the  prime  object  is  to  help  trade  conditions  then  that 
object  should  be  set  forth  frankly,  and  the  means  adopted 
to  attain  the  object  should  be  described  so  fully  that  judge 
and  jury  can  see  they  are  fair  and  legal  beyond  question, 
and  quite  sufficient  to  attain  the  end  without  resorting  to 
any  unexpressed  agreement,  any  moral  obligation,  or  "gen- 
tleman's understanding." 

It  is  believed  the  open  price  policy  supplies  the  means; 
that  it  is  sound,  sensible  and  legal ;  it  involves  no  action,  no 
agreement  of  any  kind  or  character  that  is  not  well  within 
a  man's  constitutional  rights.  The  right  to  publish  prices, 
exchange  bids  freely  and  openly,  to  deal  frankly  with  cus- 
tomers and  competitors,  are  rights  that  cannot  be  curtailed 
by  any  legislative  body  in  this  country.  Congress  and  legis- 
latures may  so  provide  that  the  exercise  of  these  rights 
shall  not  be  abused;  that  sound  and  healthful  cooperation 
shall  not  take  on  the  features  of  arbitrary  and  oppressive 
combination,  but  cooperation  itself  cannot  be  prohibited. 


IV 


It  is  one  thing  for  men  in  a  meeting  to  say,  one  after 
another,  "My  price  is  so  and  so,"  with  the  result  that  after 
the  meeting  all  their  prices  prove  substantially  the  same  as 
the  figures  mentioned. 

It  is  quite  a  different  thing  for  the  same  men  to  come  to 
a  meeting  and  each  report,  "My  actual  sales  for  the  past 


126  THE  NEW  COMPETITION 

month  have  been  so  and  so,  and  here  are  the  details  of  each 
transaction." 

In  that  statement  there  is  no  direct  or  implied  agree- 
ment to  maintain  prices,  no  obligation  of  any  kind  to  re- 
frain from  cutting. 

The  right  of  a  body  of  men  to  say  what  they  will  do  may 
not  be  clear  under  the  many  anti-trust  laws,  but  we  have  yet 
to  hear  of  a  law  that  tries  to  prevent  men  telling  what  they 
have  done. 

When  men  meet  and  each  gays,  "My  price  is  so  and 
so,"  and  all  say  the  same,  a  promise  to  maintain  that  price 
may,  perhaps,  be  inferred  from  subsequent  events;  but  no 
such  promise  can  be  inferred  from  frank  statements  of  past 
transactions ;  and  yet  more  in  the  way  of  stability  of  prices 
and  elimination  of  unfair  and  vicious  competition  will  re- 
sult from  the  mere  interchange  of  information  than  from 
an  agreement  to  maintain  prices. 

The  open  price  plan  is  the  frank  statement  of  actual 
transactions,  and  actual  transactions  interest  competitors  far 
more  than  assurances  regarding  future — the  facts  speak  for 
themselves,  the  assurances^rrespective  of  their  legality — 
are  seldom  kept. 

The  theoretical  proposition  at  the  basis  of  the  open  price 
policy  is  that, 

Knowledge  regarding  bids  and  prices  actually  made  is 
all  that  is  necessary  to  keep  prices  at  reasonably  stable  and 
normal  levels. 

No  agreements  to  maintain  prices  are  necessary,  they 
are  not  only  unnecessary  but  detrimental.  They  do  not  work 
satisfactorily  in  countries  where  not  forbidden  by  law,  they 
have  never  worked  here.  They  give  rise  to  more  distrust, 
more  bad  feeling  than  any  amount  of  cut-throat  competition, 
and,  in  so  far  as  they  are  effective  for  a  time  in  advancing 
prices,  they  are  direct  inducements  to  others  to  enter  the 
business  and  so,  in  the  end,  make  competition  all  the  keener. 


OPEN-PRICE  ASSOCIATION  127 

All  this  is  true  irrespective  of  anti-trust  laws. 

In  so  far  as  such  agreements,  pools  and  combinations 
have  seemed  to  prove  effectual  in  this  country  or  in  Eng- 
land and  Germany,  where  the  law  does  not  prohibit,  suc- 
cess has  been  due  to  pecuHar,  sometimes  artificial, 
conditions  surrounding  the  agreement,  or  to  state  encour- 
agement, but  never  under  normal  conditions  have  such 
pools  resulted  in  any  permanent  good.^ 

An  open  price  association  has  absolutely  nothing  in  com- 
mon with  old  line  pools  and  combinations.  It  is  opposed  to 
them  and  cuts  the  ground  from  under  them. 

Nor  has  it  anything  in  common  with  the  many  trades 
associations  already  in  existence — it  is  a  new  departure. 

"The  following,  just  reported  from  Germany,  where  the  govern- 
ment favors  such  agreements,  illustrates  the  utter  futility  of  attempts 
to  control  competition  and  prices  by  arbitrary  agreements  and  allot- 
ments, which  artificially  stimulate  production,  and  in  the  end  increase 
competition : 

"Cables  told  last  week  of  the  difficulties  the  great  steel  manufac- 
turing concerns  in  Germany  were  having  over  the  renewal  of  the  Ger- 
man Steel  Works  Union  for  another  term  of  five  years.  This  union  is 
nothing  less  than  a  trust  or  pool  established  with  the  friendly  knowl- 
edge of  the  Government  to  regulate  output  and  prices — a  lawful  'com- 
bination in  restraint  of  trade.'  The  purpose  of  the  union  is  to  regulate 
the  output  of  the  different  companies  in  the  interests  of  maintenance 
of  prices. 

"It  is  now  reported  that  the  members  of  the  old  union  have  failed 
to  come  to  an  agreement  upon  the  division  of  permitted  manufacture 
of  the  most  highly  competitive  products  of  the  different  mills.  The  big 
steel  makers  have  agreed  to  different  allotments  of  *A'  products. 

"  *A'  products  consist  of  semi-finished  steel  rails,  and  other  railroad 
material  and  structural  shapes.  The  *B'  products,  which  have  hereto- 
fore been  sold  by  the  associated  workers  themselves  at  their  own 
prices,  under  allotments  fixed  by  the  Steel  Works  Union,  consist  of 
bars,  wire  rods,  sheets,  and  plates,  tubes  and  castings  and  forgings. 

"What  has  militated  against  the  renewal  of  the  agreement  on  *B' 
products  was  the  great  activity  in  the  past  two  years  in  the  building  of 
new  capacity  by  the  larger  interests,  conspicuously  Deutscher  Kaiser 
and  Geisenkirchen,  causing  an  entire  change  in  the  conditions  prevail- 
ing when  the  agreement  of  1907  was  made." 


128  THE  NEW  COMPETITION 

V 

Employers  have  been  more  or  less  welded  together  by 
the  attitude  of  labor.  They  have  been  forced  to  unite  to 
deal  with  strikes  that  are  called,  in  many  instances,  as  the 
result  of  controversies  between  union  and  union,  and  not 
between  employer  and  employee. 

In  all  trades  associations  existing  at  present  the  mem- 
bers cooperate  for  only  certain  narrow  purposes,  usually 
against  a  common  enemy.  So  far  as  bidding  upon  work  is 
concerned  they  remain  independent  and  distrustful  units ;  or, 
if  they  do  discuss  prices,  it  is  with  no  intention  of  exchang- 
ing information  frankly  but  with  the  purpose  of  suppressing 
competition  entirely. 

There  is,  however,  no  reason  why  these  old  offensive 
and  defensive  associations  should  not  be  transformed  into 
genuine  cooperative  bodies  along  the  new  and  less  belliger- 
ent lines. 


VI 


Since  no  two  mdustries  follow  precisely  the  same  meth- 
ods in  marketing  their  outputs  it  is  impossible  to  set  forth  in 
detail  in  a  single  chapter  the  steps  that  should  be  followed 
by  all  to  establish  the  new  policy.  While  the  fundamental 
propositions  ar^e  the  same,  each  industry  requires  its  own 
reporting  scheme. 

For  instance,  take  the  two  great  divisions  in  the  manu- 
facturing world,  (a)  Those  manufacturers  who  produce 
goods  that  are  sold  to  jobbers  and  dealers,  (b)  those  who 
make  only  to  specifications,  each  contract  differing  more  or 
less  from  all  others  and  calling  for  special  prices  or  bids. 

Obviously  the  steps  necessary  to  establish  the  open  price 
policy  among  the  former  (a)  will  differ  materially  from  the 
jsteps  required  with  the  latter  (b).    Furthermore,  it  may  be 


OPEN-PRICE  ASSOCIATION  129 

said  that  with  any  set  of  manufacturers  or  contractors  the 
open  price  movement  must  be  a  matter  of  growth.  How- 
ever willing,  no  body  of  men  will  take  it  at  a  single  jump,  it 
is  too  revolutionary.  It  requires  time  to  eradicate  traces  of 
habits  which  have  become  second  nature,  habits  of  thought, 
of  speech,  of  conduct.  Even  when  men  are  honestly  trying 
to  think  along  the  new  lines  they  will  talk  and  correspond 
along  the  old,  the  old  phrases  will  crop  out  and  their  letters 
will  bristle  with  language  that  heretofore  has  been  used 
only  in  ''fixing"  prices  and  suppressing  competition. 

On  first  impression  it  would  seem  comparatively  easy  to 
outline  an  open  price  scheme  for  industries  belonging  to 
class  "A,"  but  difficult  to  do  so  for  those  in  class  "B." 
Such  is  not  the  case;  it  is  simply  a  matter  of  detail  in  both 
cases.  As  a  matter  of  fact,  the  same  scheme — except  in 
general  outline — will  not  fit  any  two  industries  however 
alike  they  may  be  in  their  methods  of  marketing  outputs. 


VII 


To  form  an  Open-price  Association  let  the  manufac- 
turers interested  call  a  meeting  to  discuss  the  plan. 

At  the  very  outset  they  must  be  made  to  understand  that 
the  meeting  is  not  called  for  the  purpose  of  entering  into 
any  agreement  along  old  lines;  it  is  not  called  for  the  pur- 
pose of  fixing  prices,  allotting  business,  controlling  competi- 
tion, restraining  trade,  or  creating  a  monopoly;  there  is  no 
intention  of  doing  any  of  these  things  either  directly  or 
indirectly. 

"Then  what  are  we  here  for?"  some  practical  man  will 
ask  in  a  tone  of  disgust. 

"To  get  each  one  of  you  to  tell  the  truth '' 

"Ha!    If  you  can  do  that  youVe  a  wonder." 

"If  you  won't  tell  the  truth  about  what  you  are  doing 


I30  THE  NEW  COMPETITION 

how  can  you  believe  in  each  other  when  you  promise  what 
you  zvill  do  ?" 

"We  don't:' 

"You  mean  that " 

"We've  had  all  sorts  of  agreements  in  the  past  and  not 
one  has  been  lived  up  to;  there  isn't  a  man  in  the  room 
the  others  would  trust  out  of  their  sight." 

VIII 

That  is  no  fanciful  conversation,  but  a  condensation  of 
things  said  again  and  again  by  different  sets  of  men  in  dif- 
ferent industries. 

Not  infrequently  they  speak  so  plainly  and  profanely  re- 
garding one  another's  unreliability  that  it  is  surprising  they 
do  not  come  to  blows.  The  reason  why  they  do  not  illus- 
trates an  interesting  psycho-commercial — to  coin  a  term — 
condition.  In  all  ordinary  walks  of  life  to  call  a  man  a  liar 
to  his  face  is  to  invite  a  blow,  or,  if  not  a  blow,  at  least 
some  very  plain  resentment  of  the  charge.  In  commercial 
life  to  call  a  man  a  liar  is  a  split  between  an  insult  and  a 
compliment. 

This  condition  of  distrust  among  competitors  usually 
follows  years  of  more  or  less  futile  attempts  to  get  together 
in  combinations  to  fix  prices  and  control  competition,  com- 
binations the  very  nature  of  which  afford  opportunities  to 
the  more  slippery  members  to  profit  at  the  expense  of  the 
less  slippery.  In  these  combinations  disintegration  in- 
variably begins  before  integration  is  complete. 

IX 

Having  convinced  those  present  that  they  are  not  called 
together  to  do  anything  they  have  ever  done  before,  pro- 
ceed with  the  next  step. 


OPEN-PRICE  ASSOCIATION  131 

That  is  a  careful  inquiry  into  actual  conditions  in  the 
particular  industry. 

This  inquiry  should  take  up  each  plant  or  company 
represented  with  a  view  to  ascertaining  and  noting  briefly 
in  the  minutes  the  establishment  of  the  plant  in  its  particular 
locality  and  why;  its  capacity,  labor  employed,  and  its  de- 
velopment generally,  with  figures  showing  its  maximum 
output  in  the  best  of  times  and  such  violent  fluctuations  as 
there  may  have  been  from  that  condition. 

Accurate  minutes  should  be  made  regarding  conditions 
as  they  exist  at  the  time  of  the  meeting;  if  there  is  secret 
and  unfair  competition  that  should  be  set  forth  carefully; 
if  conditions  are  such  that  producers  are  at  the  mercy  of 
buyers  and  purchasing  agents  the  situation  should  be  ex- 
plained clearly. 

If  the  association  accomplishes  no  more  than  induce  its 
members  for  the  first  time  to  institute  a  systematic  inquiry 
into  fundamental  conditions  it  serves  a  most  valuable  pur- 
pose, for  it  is  amazing  how  even  the  large  industries  of  this 
country  are  conducted  more  or  less  blindly,  with  no  central 
organization  the  prime  objects  of  which  are  to  ascertain, 
classify,  reduce  and  report  laws,  tariffs,  wages,  prices,  trade 
customs  and  all  competitive  practices.  Where  one,  two,  or 
three  large  companies  may  attempt  something  of  the  kind  it 
is  usually  in  a  spirit  of  opposition  to  others. 

The  details  of  the  organization  of  the  association  and 
especially  of  the  reporting  olan  will  depend  largely  upon 
conditions  developed. 


The    extent    of    the    organization    will    depend    upon 
whether  the  membership  is  large  or  small. 

In  industries  where  there  are  only  a  few  companies  or 


132  THE  NEW  COMPETITION 

individuals  all  that  will  be  needed  are  a  chairman  and  a 
secretary,  who  may  also  act  as  treasurer. 

In  larger  organizations  a  full  set  of  officers  will  be 
useful. 

The  two  essential  factors  are, 

1.  A  central  office  or  bureau  in  charge  of  a 

2.  Secretary. 

A  secretary  must  be  selected  who  has  no  connection  with 
any  company  in  the  association;  since  he  receives  informa- 
tion from  members  that  can  be  exchanged  only  in  certain 
ways,  his  position  is  one  of  trust. 

With  the  development  of  the  open  price  policy  ul- 
timately all  secrecy  should  disappear,  but  for  the  present  it 
is  impossible  to  get  men  to  cooperate  beyond  certain  points 
— at  first  to  only  a  very  limited  extent,  later  they  become 
more  frank  and  open,  but  never  quite  reach  the  ideal. 

With  a  central  office  in  charge  of  a  secretary  the  associ- 
ation is  ready  to  establish  the  open-price  by  filing  with  the 
secretary :  ^ 

1.  All  inquiries. 

2.  All  bids. 

3.  All  contracts. 

XI 

The  proposition  is  simplicity  itself,  but,  inasmuch  as 
not  one  of  these  things  has  ever  been  done  by  any  associa- 
tion of  contractors  or  manufacturers,  and  each  is  diametric- 

*We  are  here  dealing  with — let  us  assume — an  industry  the  work 
of  which  is  done  on  contract;  that  is,  bids  are  called  for  by  the  pur- 
chaser and  each  job  is  a  special  contract,  such  as  the  erection  of  a  steel 
building.  The  same  reporting  plan,  with  minor  changes,  would  apply 
to  an  association  of  builders,  or  of  carpenter-contractors,  mason-con- 
tractors, plumbing-contractors — in  short,  to  any  body  of  men  or  com- 
panies who  first  bid  on  work  and  then  do  it  under  special  contract. 


OPEN-PRICE  ASSOCIATION  133 

ally  opposed  to  custom  and  tradition,  the  suggestions  are 
certain  to  be  received  with  opposition. 

"What! — report  all  the  inquiries  we  get  for  business! 
Never.'' 

"File  all  the  bids  w^e  make !    Not  on  your  life." 

"Hand  in  copies  of  contracts  with  our  customers!  I 
guess  not." 

There  are  two  answers  to  all  objections:  first,  those 
things  must  be  done  if  the  open  price  plan  is  to  be  tried; 
second,  conditions  can  be  no  worse  under  the  open  price 
than  under  the  secret,  and  they  may  be  better,  hence  it  is 
worth  while  to  try  the  plan. 

It  is  revolutionary  to  ask  men  to  file  all  inquiries,  all 
bids,  all  contracts  for  the  information  of  competitors,  and 
on  its  face  it  looks  like  a  very  foolish  proposition,  but  it  is 
not,  and  wherever  tried  it  has  worked  out  some  good,  not 
much  in  some  instances,  more  in  others,  all  depending  upon 
how  frankly  and  faithfully  the  plan  is  lived  up  to. 


XII 


Upon  receipt  of  the  information  the  secretary  proceeds 
as  follows : 

The  information  contained  in  reports  of  inquiries  is 
not  interchanged.  Members  are  not  furnished  any  in- 
formation regarding  prospective  bidders.  There  is  no  legal 
objection  to  giving  such  information  providing  it  does  not 
lead  to  collusive  bidding;  but  the  safer  course  is  not  to  give 
it.  From  the  reports  of  inquiries  the  secretary  makes  up  a 
weekly  bulletin  containing  statistical  information.  This  re- 
port in  itself  is  of  value,  especially  to  the  small  manufac- 
turer, who  has  no  means  of  keeping  track  of  what  is  going 
on,  and  it  is  of  advantage  to  the  large  producer  since  it  helps 
the  small  to  bid  more  intelligently,  and  intelligent  competi- 


134  THE  NEW  COMPETITION 

tion  is  never  so  demoralizing  as  ignorant.  This  summary 
will  give  an  accurate  estimate  of  the  volume  of  work  in 
sight,  together  with  its  general  character  and  other  facts 
that  will  influence  members  in  bidding.  Obviously,  if  the 
weekly  reports  show  rapid  increase  in  inquiries,  indicating 
a  larger  volume  of  work  pending,  individual  members  will 
not  be  so  quick  to  fill  up  with  low  priced  work,  there  will 
be  a  normal  stiffening  of  prices;  precisely  such  as  results 
from  crop  failure  statistics  furnished  by  the  Government. 


XIII 


On  receipt  of  a  bid  the  secretary  does  one  of  three 
things ;  depending  upon  the  rules  adopted ; 

(a)  If  the  member  sending  in  a  bid  endorses  it 
"sealed"  the  secretary  will  so  keep  it,  and  no  information  re- 
garding that  bid  will  be  sent  to  other  members  until  after 
contract  is  let,  whereupon  all  bids  are  open  for  discussion. 
It  is  needless  to  say  that  the  member  who  marks  his  bid 
"sealed"  gets  no  information  regarding  other  bids;  he  sim- 
ply elects  to  take  his  chances  in  the  dark,  in  the  old  way; 
for  the  time  being  he  foregoes  the  advantages  of  the  asso- 
ciation. It  would  be  better  if  the  reporting  plan  did  not  pro- 
vide for  "sealed"  bids,  since  they  are  opposed  to  the  spirit 
of  the  open  price  policy,  but  the  writer  has  found  in  some 
instances  that  the  only  way  to  induce  the  very  skeptical  to 
try  the  open  price  plan  was  to  give  them  the  right  to  file 
bids  sealed  if  they  desired;  in  time  they  drop  the  practice 
because  there  is  nothing  in  it,  it  offers  no  advantage,  quite 
the  contrary,  it  places  the  "sealed"  bidder  in  a  position  of 
disadvantage  as  compared  with  other  members  bidding 
openly. 

The  argument  most  often  urged  in  favor  of  the  prac- 


OPEN-PRICE  ASSOCIATION  135 

tice  is,  "Suppose  I  know  the  customer  and  am  sure  he  will 
give  me  the  contract,  why  should  I  make  known  my  bid  ?** 

The  answer  is  that  it  is  these  "sure"  things  that  are 
most  uncertain,  and  by  filing  the  bid  open  the  bidder  may 
be — usually  is — surprised  to  find  his  "friend"  is  quietly 
getting  bids  from  others. 

(b)  The  secretary  will  interchange  all  bids  as  received 
— that  is,  the  first  bid  is  held  until  the  second  is  received, 
whereupon  copies  of  the  two  are  immediately  interchanged, 
and  so  on  as  each  successive  bid  comes  in.  Under  this  plan 
the  filing  of  a  bid  is  the  key  that  unlocks  all  other  bids  on 
file. 

The  theory  of  the  open  price  demands  the  utmost 
publicity  in  the  making  of  bids ;  the  ideal  condition  would  be 
an  open  exchange  where  all  bids  would  be  filed  and,  as 
filed,  marked  up  on  a  blackboard — so  to  speak — where  all 
interested  might  see;  such  a  condition  would  work  won- 
ders in  the  way  of  saving  of  time  and  money  to  both  con- 
tractors and  customers. 

For  the  time  being,  however,  it  is  hard  enough  to  in- 
duce men  to  exchange  their  bids  more  or  less  furtively;  old 
habits  of  secrecy  and  distrust  are  too  strong. 


XIV 


Now  comes  a  fundamental  proposition.  No  bidder  is 
bound  to  adhere  to  his  bid  for  the  fraction  of  a  second. 
After  ascertaining  the  bids  of  others  each  is  free  to  lower 
his  own  bid  to  secure  the  work,  but,  in  all  fairness,  he  must 
immediately  file  all  changes  so  as  to  give  other  bidders 
chancec  to  come  in  and  compete  further. 

"That  is  a  rotten  scheme,"  exclaims  the  man  who  has 
come  to  the  meeting  with  the  sole  purpose  of  "boosting" 
prices. 


136  THE  NEW  COMPETITION 

"Talk  about  competition!  That  will  throw  the  doors 
wide  open,"  protests  another,  and  so  on. 

As  a  matter  of  fact,  the  frank  interchange  of  bids  with 
liberty  to  cut  as  members  please  does  not  result  in  fiercer 
competition;  on  the  contrary,  while  it  does  not  lessen  tru« 
competition,  it  takes  out  the  ugly  elements  that  go  to  make 
up  the  old  "cut-throat'*  competition. 

To  restate  the  matter  concretely, — if  Smith  bids  on  a 
piece  of  work  and,  after  receiving  from  the  secretary  copies 
of  the  bids  of  Jones  and  Robinson,  finds  he  is  the  high  bid- 
der he  is  at  liberty  to  put  in  a  lower  bid  to  get  the  work, 
but  he  must  notify  Jones  and  Robinson  what  he  is  doing, 
and,  in  all  fairness,  notify  them  in  time  to  permit  them  to 
revise  their  bids  if  they  care  to. 

Speaking  from  experience  the  writer  can  say  that  for  a 
time  after  an  association  is  organized  the  impression  may 
prevail  that  there  is  an  implied,  a  moral  obligation  not  to 
cut  bids,  and  members  are  reproached  bitterly  for  cutting. 
This  feeling  is  a  survival  of  the  old  agreements  to  maintain 
prices,  it  springs  from  conditions  where  men  did  agree,  di- 
rectly or  indirectly,  to  stand  by  their  bids — the  more  indi- 
rect the  agreement  the  greater  the  acrimony  when  cuts  were 
discussed,  and,  sooner  or  later,  those  old  combinations 
would  fall  to  pieces,  disintegrated  by  distrust. 

Men  will  cut  to  get  business  when  they  need  it,  and 
they  will  cut  all  the  more  if  they  suspect  others  are  cutting. 
No  agreement  strong  enough  to  prevent  this  has  ever  yet 
been  drawn. 

That  being  true,  the  safe  course  is  to  provide  for  cut- 
ting, remove  all  restrictions,  so  that  under  the  rules  of  the 
association  no  member  can  so  much  as  question  the  right 
of  another  to  bid  as  freely,  as  often,  and  as  low  as  he 
pleases. 

At  first  men  are  inclined  to  make  cuts  at  the  eleventh 
hour  and  close  a  contract  before  there  is  time  to  notify 


OPEN-PRICE  ASSOCIATION  137 

the  other  bidders.  The  plea  is,  "I  had  no  choice,  it  was 
either  reduce  my  bid  then  and  there  and  take  the  contract, 
or  lose  it  altogether." 

In  some  instances  the  plea  is  good,  in  most  it  is  not. 
In  some  cases  circumstances  and  the  attitude  of  the  owner 
are  such  that  the  bidder  is  given  but  a  moment  in  which  to 
decide,  he  may  even  be  told  that  unless  he  makes  the  re- 
duction on  the  spot  and  signs  the  contract  his  opportunity  is 
gone.  Until  this  condition  of  things  is  remedied — and 
remedied  it  will  be — bidders  will  be  tempted  to  make  cuts 
and  take  contracts  without  notifying  others  as  they  should. 

The  practice  is  wrong  and  contrary  to  the  spirit  of  the 
New  Competition,  but  it  will  take  time  to  abolish  it. 

In  the  great  majority  of  instances  where  men,  avowedly 
committed  to  the  open  price  policy,  make  cuts  and  close 
contracts  at  the  eleventh  hour  without  notifying  other  bid- 
ders, the  plea  of  necessity  is  a  subterfuge,  they  take  the 
work  because  they  want  it  and  do  not  notify  others  be- 
cause they  fear  the  others  would  cut  still  lower. 


XV 


But,  while  members  are  free  t6  change  their  bids  as 
often  as  they  please,  the  practice  is  a  vicious  one  for  this 
reason — it  is  not  fair  to  the  customer. 

The  man  who  makes  one  bid  to  a  customer  with  the  in- 
tention of  making  a  lower  if  necessary  is  gambling  on  the 
chance  of  getting  more  than  he  is  willing  to  take,  he  is  do- 
ing precisely  what  the  tricky  second-hand  clothes  dealer  does 
when  he  asks  one  price  and  before  the  customer  can  get 
away  calls  out  a  lower. 

The  Government  does  not  permit  that  sort  of  thing, 
cities  do  not  permit  it.    When  a  man  bids  on  public  work  he 


138  THE  NEW  COMPETITION 

must  put  in  his  best  figure  and  stand  by  it;  if  he  is  high  he 
cannot  change  it. 

Every  retail  merchant  of  any  standing  marks  his  best 
and  only  price  on  his  goods. 

In  the  end  the  open  price  poHcy  will  bring  about  the 
same  conditions  in  the  manufacturing  and  contracting 
world — the  man  who  tries  to  change  his  bid  will  be  looked 
upon  as  on  a  par  with  the  second-hand  clothes  dealer. 


XVI 


Since  members  are  free  to  bid  as  they  please  it  removes 
the  one  prolific  source  of  complaint  and  recrimination  inci- 
dental to  old-time  associations  namely,  that  "some  one  is 
cutting'*  and  thereby  violating  an  agreement  expressed  or 
implied  to  observe  some  price. 

It  is  impossible  to  keep  men  to  a  fixed  price,  therefore 
why  waste  time  trying  to?  It  is  possible  to  keep  them  to 
an  agreement  to  tell  others  what  they  have  done. 

Note  the  distinction — the  fixed  price  means  an  agree- 
ment of  some  kind  to  maintain  a  price,  to  do  something,  to 
live  up  to  something.  That  sort  of  an  agreement  is  never 
kept  for  long;  quite  aside  from  questions  of  legality  the 
agreement  is  worthless  because  it  is  no  stronger  than  each 
man's  belief  in  the  good  faith  of  all  the  parties  to  it,  and, 
since  every  man  feels  sure  that  at  least  some  of  his  competi- 
tors will  be  quick  to  violate  it  and  reap  a  profit,  he  secretly 
violates  it  himself. 

The  agreement  to  tell  one  another  what  has  been  done  is 
quite  another  matter,  since,  after  all,  it  simply  provides  for 
the  systematic  exchange  of  information  that  is  sure  to  come 
out.  This  obligation  is  so  fair  and  works  out  so  many  good 
results  that  the  trickiest  competitor  in  the  end  sees  it  is  to 
his  advantage  to  live  up  to  it. 


OPEN-PRICE  ASSOCIATION  139 

It  takes,  however,  months  of  patient  effort  to  educate 
all  to  the  point  of  frank  and  prompt  compliance. 


XVII 

The  filing  of  contracts  as  and  when  closed  is  the  final 
step  in  the  reporting  plan;  it  marks  the  termination  of  the 
competition.  The  secretary's  office  will  thus  have  a  com- 
plete file  of  each  transaction — (i)  the  original  inquiries; 
(2)  all  bids  and  changes  in  bids;  (3)  the  contract  as  finally 
awarded.  A  report  is  sent  to  all  other  bidders  on  the  work 
and  they  are  able  to  compare  the  contract  with  the  bid  of 
the  man  who  took  it. 

This  final  report  enables  other  bidders  to  see  whether 
the  owner  dealt  fairly  and  frankly  with  them,  or  whether 
he  asked  them  to  bid  on  work  to  be  done  under  certain 
conditions  and  let  it  to  the  successful  man  upon  more  fa- 
vorable conditions. 

So  much  for  the  operation  of  the  secretary's  office.  In 
the  reporting  of  (a)  inquiries,  (b)  bids,  (c)  contracts,  the 
central  office  has  been  simply  the  clearing  house  for  in- 
formation, it  has  handled  all  reports  in  a  regular  routine  as 
provided  in  the  by-laws,  no  meeting  of  the  members  has 
been  necessary  for  the  operation  of  the  reporting  scheme. 


XVIII 

With  this  data  the  association  is  ready  for  an  intelli- 
gent discussion  of  the  business  of  the  month,  and  the  plan 
is  not  complete  without  this  discussion.  The  open  price 
policy  means  not  only  open  prices  but  open  discussions. 

To  this  end  regular  weekly,  semi-monthly,  or — at  the 
longest — monthly  meetings  are  necessary,  at  which  mem- 


140  THE  NEW  COMPETITION 

bers  must  be  represented  by  those  who  are  familiar  with 
the  business  and  can  speak  authoritatively;  meetings  at- 
tended by  subordinate  agents  who  have  only  hearsay 
knowledge  are  a  waste  of  time.  The  atmosphere  may  be 
surcharged  with  irritation  and  distrust  owing  to  the  manner 
in  which  a  number  of  contracts  have  been  closed.  Under 
the  old  competition  this  is  never  cleared,  but  goes  on  from 
bad  to  worse. 

Under  the  new  competition  it  is  the  business  of  each 
meeting  to  clarify  the  atmosphere  and  start  each  month 
with  a  clean  slate  so  far  as  complaints  are  concerned. 

The  quickest  way  is  for  the  presiding  officer  to  call  the 
name  of  each  member  and  ask  whether  any  other  member 
present  has  any  complaint  to  make  or  questions  to  ask  re- 
garding work  taken  during  the  preceding  month  by  the 
member  under  fire. 

As  between  each  member  and  the  party  complaining  the 
other  members  are  impartial  listeners.  Their  presence  and 
their  neutrality,  together  with  the  good  sense  of  the  pre- 
siding officer,  prevent  the  discussions  from  becoming  acri- 
monious; the  fact  that  each  member  has  to  go  through  the 
same  ordeal  is  a  strong  deterrent  to  personalities. 

As  each  member  has  the  right  to  make  any  price  he 
pleases  there  are  no  complaints  on  account  of  cutting,  but 
only  regarding  the  circumstances  attending  the  cuts. 

Nine-tenths  of  the  complaints  will  simmer  down  to  fail- 
ures to  live  up  frankly  to  the  reporting  plan.  At  first  the 
best  of  men  may  do  things  they  ought  not  to  do  when  after 
work  they  need  or  want  very  badly,  but  as  time  goes  on  all 
will  see  that  in  the  long  run  it  is  more  profitable  to  observe 
the  rules. 

At  first,  and  for  many  a  month,  not  a  member  at  a  meet- 
ing will  escape  criticism.  All  the  contracts  and  all  the  bids 
will  be  overhauled  and  scrutinized.  The  secretary  present 
with  his  records  will  be  called  upon  to  show  just  what 


OPEN-PRICE  ASSOCIATION  141 

passed  through  his  office,  and  such  questions  as  these  will  be 
asked : 

"Why  didn't  you  send  in  your  bid  sooner?" 

"Why  didn't  you  note  on  your  bid  that  you  changed  the 
specifications?" 

"Why  did  you  put  in  a  second  bid?"  "Why  did  you  put 
in  a  lower  bid  after  you  got  a  copy  of  my  bid?"  "Why 
didn't  you  notify  me  of  your  lower  bid?"  "How  came  you 
to  get  the  contract  when  my  bid  was  lower  ?"  "Why  should 
the  owner  favor  you?"  "Is  there  any  secret  rebate  or  un- 
derstanding between  you  and  the  owner?"  And  so  on,  and 
so  on. 

The  queries  are  keen  and  searching.  There  is  no  use 
trying  to  evade  answering;  it  is  foolish  to  answer  falsely. 
If  a  member  does  not  disclose  the  facts  they  are  sure  to 
come  out  later.  The  buyer  who  gets  a  secret  advantage 
never  keeps  it  secret ;  he  is  so  pleased  with  his  own  shrewd- 
ness he  courts  applause.  If  it  is  a  purchasing  agent  he 
gets  no  credit  for  his  cunning  unless  he  tells  those  who  em- 
ploy him;  nine  times  out  of  ten  he  will  exaggerate  the  ad- 
vantage he  has  gained  and  no  little  time  is  spent  at  meetings 
of  open  price  associations  in  running  down  and  exposing 
these  exaggerations  and  false  reports  of  agents  and  owners, 
reports  often  made  for  the  express  purpose  of  keeping  con- 
tractors in  a  state  of  jealous  distrust. 

As  a  result  of  these  open  discussions  members  separate 
with  full  and  accurate  knowledge  regarding  conditions  at- 
tending the  letting  of  all  work  during  the  preceding  month 
and  will  govern  themselves  accordingly. 

XIX 

It  is  impossible  to  meet  in  advance  all  the  objections 
that  will  be  urged  to  the  plan,  but  some  things,  based  on  ex- 
perience, may  be  said. 


142  THE  NEW  COMPETITION 

In  organizing  an  association  it  is  important  to  press  the 
open  price  policy  no  farther  than  the  most  skeptical  member 
is  prepared  to  go.    Adjust  the  strain  to  the  weakest  link. 

The  chances  are  that  many  present  will  be  more  or  less 
familiar  with  the  attempts  and  failures  of  price-fixing  com- 
binations; if  so,  each  will  have  his  tale  of  woe,  how  this  man 
and  that  man  "did  not  live  up  to  the  agreement,"  how  they 
promised  to  maintain  prices  "and  then  went  out  after  all 
the  business  in  sight  at  any  old  price,'^  etc.,  etc. ;  the  com- 
plaints are  as  familiar  as  the  story  of  an  after-dinner 
speaker. 

This  condition  of  profound  distrust  is  a  fact  to  be  dealt 
with,  not  ignored.  It  is  just  as  well  to  open  the  explana- 
tion of  the  reporting  plan  with  about  these  words : 

"Let  us  assume  that  all  you  think  of  one  another  is  true 
and  that  not  a  man  present  is  to  be  trusted  outside  this 
room. 

"By  assurning  the  worst  there  will  be  no  unpleasant  sur- 
prise in  store — events  may  prove  we  are  mistaken. 

"Acting  upon  the  assumption  that  no  man  will  do  as 
he  agrees  unless  he  wants  to  or  can't  help  it,  let  us  not  agree 
to  do  anything  simply  because  we  ought  to,  but  only  those 
things  we  either  want  to  do  or  can't  help  doing. 

"And  when  we  get  along  a  little  farther  and  generate 
a  little  more  confidence  in  one  another  we  will  agree  to  a 
few  things  we  ought  to  do,  but  for  the  present,  no." 

XX 

There  was  a  set  of  men  who  had  been  in  a  price-fixing 
combination  that  had  fallen  apart  on  account  of  failures  on 
the  part  of  this  one  and  that  one  to  observe  the  agreement, 
the  feeling  of  one  toward  another  was  so  bitter  it  seemed 
impossible  to  induce  them  to  adopt  the  open  price  policy, 
but  it  was  done  and  in  this  way : 


OPEN-PRICE  ASSOCIATION  i43 

"Will  you  meet  together?" 

"Yes,  but  it  won't  do  any  good." 

"Will  you  file  with  a  secretary  and  interchange  all  bids 
and  prices  you  make?" 

"No,"  was  the  emphatic  answer  of  a  number  present. 

"Very  well,  let's  see  what  you  are  willing  to  do;  will 
you  file  your  bids  under  seal,  the  secretary  not  to  open  same 
until  contract  is  let?'* 

"See  no  objection  to  that,  but  what's  the  good  ?" 

"Wait,  will  you  file  all  contracts  as  finally  closed  ?" 

"Um — -m — ^yes,  for  most  of  them  are  known  anyway." 

"Will  you  agree  that  after  a  contract  is  closed  and  filed 
all  bids  on  that  job  shall  be  opened  and  discussed  at  the  next 
regular  meeting?" 

"Yes,"  one  keen  man  spoke  up  quickly,  "for  then  we 
will  at  least  know  what  each  one  has  been  doing;  as  it  is 
now  the  purchaser  tells  us  any  old  story  about  the  bids  he 
has  and  we  have  no  way  of  knowing  whether  he  is  lying  or 
not." 

"Then  you  have  made  a  beginning;  you  are  going  to 
meet  together,  file  all  bids,  all  contracts,  and  open  all  bids 
on  each  job  after  contract  is  closed." 

"That  will  bring  some  of  you  fellows  out  into  the 
open,"  one  man  remarked  with  a  sneer. 

"Fd  like  to  check  up  some  of  the  figures  you  have  been 
making,"  the  other  retorted. 

And  that  was  as  far  as  that  particular  set  of  men  would 
go  the  first  day. 

The  next  day  two  or  three  were  ready  to  go  a  step 
farther. 

"Why  not  try  the  plan  of  interchanging  bids  before  the 
contract  is  let?    What  difference  does  it  make?"  one  urged. 

"And  give  you  a  chance  to  cut  my  price?    Not  much." 

The  debate  waxed  strong  until  ended  by  this  sugges- 
tion: 


144  THE  NEW  COMPETITION 

**Why  waste  time  arguing  the  matter,  a  few  of  you  are 
in  favor  of  the  open  price  plan,  most  of  you  are  not ;  there 
is  no  need  trying  to  convince  those  who  are  not;  the  thing 
to  do  is  for  those  who  wish  to  try  the  plan  to  instruct  the 
secretary  to  that  effect  and  he  will  interchange  their  bids 
as  received  but  keep  sealed  all  bids  filed  by  members  who 
are  opposed  to  the  plan." 

Four  or  five  then  and  there  told  the  secretary  to  inter- 
change their  bids,  and  before  two  months  had  passed  all 
adopted  the  plan. 

It  is  useless  to  try  to  coerce  or  even  urge  men  to  adopt 
a  plan  they  do  not  fully  understand  and  about  which  they 
are  skeptical.  If  they  adopt  it  under  pressure  they  will  not 
live  up  to  it,  but  if  they  fall  in  line  of  their  own  accord  and 
because  they  do  not  wish  to  be  left  behind  it  is  a  different 
matter. 


XXI 


Blanks  are  prepared  to  fit  the  industry — one  for  report- 
ing inquiries  on,  say,  white  paper;  a  second  for  reporting 
bids  on,  say,  yellow  paper;  a  third  for  reporting  contracts 
closed  on,  say,  blue  paper,  and  blocks  of  same  are  furnished 
members. 

Each  blank  should  bear  on  its  face  plainly  printed  di- 
rections for  its  filling  out  and  use. 

In  many  industries  it  may  be  more  convenient  to  send 
in  carbon  copies  of  bids  and  contracts. 

The  secretary  on  his  part  will  have  suitable  blanks  for 
reporting  back  to  members  bids  filed  and  contracts  closed. 

All  blanks  should  be  of  a  size — say  not  larger  than  reg- 
ular letter  paper — so  as  to  drop  into  a  loose  leaf  file  holder 
and  filing  cabinet.  One  association  uses  a  simple  folded 
wrapper  of  heavy  manilla  paper  that  has  printed  on  it  the 
proper  form  for  endorsing  dates  of  each  step.     On  re- 


OPEN-PRICE  ASSOCIATION  145 

ceipt  of  report  of  an  inquiry  it  is  filed  in  one  of  these  wrap- 
pers and  each  report  as  it  comes  in  and  all  correspondence 
relating  to  that  particular  piece  of  work  go  into  the  same 
wrapper  and  nothing  else,  so  that  in  the  end  the  complete 
history  of  the  job  from  first  inquiry  to  closing  of  contract 
is  contained  in  the  wrapper  and  abstracted  on  its  face. 


XXII 

The  foregoing  is  a  brief  description  of  the  working  of 
the  secretary's  office.  The  machinery  is  simple  and  tends  to 
become  almost  automatic. 

So  far  as  daily  routine  of  receipt  of  inquiries,  inter- 
change of  bids  and  notices  of  contracts  is  concerned  it  can 
all  be  done  by  a  competent  stenographer,  or  typewritist,  but 
the  success  of  an  association  depends  largely  upon  the  tact 
and  good  judgment  of  the  secretary. 

He  need  not  necessarily  be  a  man  familiar  with  the  par- 
ticular industry,  but  his  training  and  experience  should  have 
been  such  as  to  render  it  easy  for  him  to  grasp  details 
quickly,  and  he  should  be  a  man  in  whose  integrity  the 
members  have  absolute  faith  and  upon  whose  judgment  they 
clre  willing  to  place  considerable  reliance. 

As  he  will  be  in  the  midst  of  every  dispute  that  arises 
the  outcome  of  differences  may  turn  upon  the  tact  he  dis- 
plays. 

For  the  first  few  months  he  will  be  busy  getting  the 
members  into  the  spirit  of  the  open  price  policy;  his  posi- 
tion will  be  difficult  for  the  policy  is  new  and  revolutionary, 
and  may,  for  a  time,  result  in  even  greater  competition; 
members  will  be  dissatisfied  because  they  get  no  results,  be- 
cause prices  are  no  better,  and  some  may  resign  or  talk  of 
resigning. 

Whether  the  association  survives  this  formative  period 


146  THE  NEW  COMPETITION 

will  depend  entirely  upon  those  advising  it  rather  than  upon 
the  members  themselves;  it  is  the  man  who  has  no  interest 
in  the  business  who  is  in  a  position  to  pour  oil  on  the 
troubled  waters. 


XXIII 

No  association  should  be  formed  for  less  than  one  year, 
and  members  should  be  required  to  either  pay  in  their  pro 
rata  share  of  the  expenses  for  the  entire  year  or  so  firmly 
commit  themselves  there  will  be  no  thought  of  resigning. 

Men  who  are  suffering  from  fierce  competition  are  quick 
to  come  together  at  the  call  of  almost  anybody  and  ready 
to  enter  into  any  agreement  that  holds  out  the  slightest  hope 
of  bettering  their  condition,  but. when  the  hope  is  not  im- 
mediately realized  in  higher  prices  they  are  just  as  quick  to 
drop  out. 

The  open  price  policy  promises  no  quick  relief ;  relief  in 
the  way  of  better  prices  may  be  uncertain,  hence  it  is  im- 
portant that  an  association  should  be  assured  sufficient  per- 
manency to  give  the  new  departure  a  fair  trial,  for  better 
conditions  will  come,  first  of  all,  in  the  way  of  friendly 
intercourse  and  confidence  in  the  place  of  jealous  distrust 
and  hatred;  secondly,  in  the  very  great  advantages  that 
flow  from  knowing  for  the  first  time  the  exact  conditions 
prevailing  in  the  industry ;  thirdly,  in  the  tendency  of  prices 
to  seek  normal  levels  and  competition  to  lose  its  unfair  and 
brutal  features. 

Those  advantages  will  be  realized  in  the  order  named, 
and  it  will  be  idle  to  expect  any  beneficial  effects  upon  com- 
petition or  prices  until  distrust  and  hatred  have  been  elimi- 
nated ;  that  is  why  it  takes  time  to  bring  results.  Men  who 
say  they  would  not  believe  one  another  under  oath  cannot 
be  transformed  in  the  twinkling  of  an  eye ;  many  can  never 


OPEN-PRICE  ASSOCIATION  147 

be  converted,  hence  not  a  few  associations  will  be  doomed 
to  failure  from  the  start. 

XXIV 

The  procedure  at  regular  meetings  of  a  large  associa- 
tion should  be,  generally  speaking: 

1.  The  meeting  of  the  executive  committee,  followed 
by  the  meeting  of  the  association. 

2.  The  transaction  of  all  routine  business  in  systematic 
fashion;  the  more  the  association  has  to  do  in  a  general 
way,  aside  from  reports,  bids,  and  contracts,  the  better  it 
is,  for  the  broadening  of  the  scope  of  the  organization  and 
the  transaction  of  general  business  all  tend  to  take  the  edge 
off  complaints  and  minimize  their  importance. 

3.  Hearing  of  reports  from  each  member  regarding 
general  conditions  in  the  industry,  outlook  for  business,  raw 
material  market,  etc.,  etc.  In  one  association  these  reports 
have  become  so  frank  that  each  member  states  not  only  the 
condition  of  his  plant  as  regards  work  in  hand  and  ahead 
(facts  largely  known  through  the  reporting  plan),  but  his 
purchases  of  raw  material  with  prices  paid. 

4.  Complaints.  Each  member  who  has  any  complaint 
to  make  or  questions  to  ask  regarding  bids  or  contracts 
notifies  the  secretary  in  advance  of  the  meeting  so  the  latter 
may  have  the  required  files  present. 

In  old-line  combinations  men  never  dared  mention 
names  or  say  very  much  "for  fear  of  disrupting  the  asso- 
ciation"; when  they  knew  agreements  to  maintain  prices 
were  being  flagrantly  violated  they  did  not  dare  denounce 
the  guilty  parties,  but  would  go  on  damning  them  behind 
their  backs  until  the  combination  collapsed.  In  an  open- 
price  association  the  reverse  of  this  condition  prevails. 

Many  of  the   evasions   of  rules  are  due  to   salesmen 


148  THE  NEW  COMPETITION 

eager  to  make  sales,  others  are  due  to  the  fault  of  members 
who  know  better. 

But,  as  meeting  after  meeting  is  held,  and  all  these  prac- 
tices are  brought  to  light  and  discussed,  they  become  less 
frequent. 

The  outcome  of  nearly  every  discussion  of  failure  to  live 
up  to  the  spirit  of  the  reporting  plan  is  a  promise  on  the 
part  of  the  delinquent  member  to  see  that  his  company  does 
better  next  month.  Now  and  then  a  member  who  feels  ag- 
grieved threatens  to  stop  reporting  or  to  mark  all  his  bids 
"sealed  as  to  the company,"  naming  the  offend- 
ing member,  which  would  mean  that  those  two  members 
would  exchange  no  inform.ation,  but  the  threat  is  rarely  car- 
ried into  execution. 

The  reporting  plan  is  so  eminently  fair  that  men  find 
little  excuse  for  failing  to  live  up  to  its  simple  provisions. 


XXV 

Publicity  is  a  cardinal  principle  of  the  new  competition. 
All  that  is  done  must  be  done  openly. 

No  more  barricaded  doors,  no  more  ciphers  and  cryptic 
letters,  no  more  numbered  price  lists  passed  furtively  from 
hand  to  hand,  no  more  tame  disavowals,  no  more  tacit  un- 
derstandings and  gentlemen's  agreements — all  these  eva- 
sions and  subterfuges  belong  to  the  past.  The  new  com- 
petition has  no  use  for  them,  they  are  the  excrescences  of 
the  old. 

In  order  to  avoid  misunderstandings  by  members,  by 
customers,  by  the  public,  it  is  important  that  the  constitu- 
tion and  by-laws  be  carefully  drawn  so  as  to  express  in 
full  the  purposes  of  the  association  and  every  agreement 
underlying  its  organization.  This  is  advisable  everywhere, 
it  is  doubly  advisable  in  this  country  where  the  law  regard- 


OPEN-PRICE  ASSOCIATION  149 

ing  restraint  of  trade  is  so  strict  and  the  public  so  suspicious. 

The  purposes  of  the  organization  must  be  so  clearly  ex- 
pressed as  to  leave  no  room  for  inference,  no  room  for  ar- 
gument that  possibly  something  of  an  illegal  or  sinister 
character  is  hidden. 

The  fundamental  propositions  must  be  so  framed  that 
even  a  judge  not  versed  in  business  will  be  able  to  under- 
stand the  plan  and  plainly  see  that,  if  lived  up  to,  good  to 
the  industry  must  result  and  that,  too,  without  any  addi- 
tional act  of  a  secret  and  unlawful  character. 

Both  the  safety  and  the  strength  of  the  association  lie 
in  publicity. 

This  means  that,  once  organized,  the  records  of  all  meet- 
ings, all  transactions,  must  be  so  kept  that  they  set  forth  ac- 
curately every  act  of  the  association  that  has  any  bearing 
upon  prices,  conditions  of  trade,  and  the  objects  of  the  or- 
ganization. 

If  the  question  is  asked  "What  did  you  do  at  a  given 
meeting?"  the  answer  must  be  found  in  black  and  white  in 
the  secretary's  office ;  no  other  evidence  should  be  needed. 

Hold  meetings  with  open  doors — literally,  not  figura- 
tively ;  invite  competitors  to  attend  as  visitors,  whether  they 
wish  to  join  or  not,  and  urge  any  curious  or  doubting  cus- 
tomer to  come  and  observe  what  is  done. 

Do  nothing  you  are  afraid  to  record;  record  everything 
you  do,  and  keep  your  records  where  any  public  official  in 
the  performance  of  his  duties  may  have  easy  access  to  them. 
In  short,  preserve  so  carefully  all  evidence  regarding  inten- 
tions, acts,  and  results  that  there  will  be  no  room  for  in- 
ference or  argument  that  anything  else  was  intended,  done, 
or  achieved. 

XXVI 

Now  what  are  some  of  the  results  I 


150  THE  NEW  COMPETITION 

First  of  all  "vicious"  bidding  disappears.  By  "vicious" 
bidding  is  meant  bids  put  in  by  competitors  who  know  they 
stand  no  chance  of  getting  the  work,  simply  to  "make  the 
other  fellow  do  it  for  nothing."  Of  all  competition  that  is 
the  meanest.  No  purchaser  has  the  right  to  encourage  it, 
no  producer  the  right  to  indulge  in  it;  it  means  the  sure 
elimination  of  the  weak,  ultimate  monopoly  by  the  strong. 

With  open  bidding  there  is  the  natural,  the  automatic 
tendency  for  prices  to  approach  normal  levels;  the  wide 
spreads  so  frequent  under  false  competition — secret  bidding 
— are  minimized.  There  is  less  bidding  below  cost  at  one 
extreme  and  fewer  or  no  arbitrarily  high  prices  at  the  other. 
The  customer  is  surer  of  fairer  treatment  in  the  long  run, 
the  producer  of  fairer  prices.  The  open-price  policy  is  both 
a  safety  valve  and  a  governor,  it  works  toward  stability. 

By  eliminating  secret  prices  it  eliminates  secret  rebates, 
concessions,  and  graft ;  by  bringing  all  dealings  out  into  the 
open  it  ends  four-fifths  of  the  fraud  and  misrepresentations 
that  now  attend  the  letting  of  the  simplest  contract ;  the  pur- 
chaser will  no  longer  be  able  to  secure  a  fraudulent  ad- 
vantage by  saying  he  has  a  lower  bid  when  he  has  not.  In 
all  their  deialings  both  purchaser  and  producer  will  be  more 
nearly  on  a  footing  of  equality. 

The  business  will  be  placed  upon  a  more  scientific  and 
rational  footing.  Instead  of  competing  under  conditions  of 
jealous  distrust  and  suspicion,  wasting  time  and  money  in 
doing  things  they  either  should  not  do  at  all,  or  should  do 
with  a  fraction  of  the  expenditure,  members  will  cooperate 
to  accomplish  as  a  unit  the  things  they  rightfully  may  do. 

Finally,  the  open  price  policy — the  new  competition,  with 
the  friendly  association  it  involves,  tends  to  make  business 
life  a  little  better  worth  living. 


OPEN-PRICE  ASSOCIATION  151 

XXVII 

Since  the  first  edition  of  this  book  Open- Price  Associ- 
ations have  been  estabhshed  and  are  in  successful  operation 
in  many  important  industries.  Meetings  are  held  with 
open  doors;  competitors  and  customers  are  welcome  and 
frequently  attend.  Pains  are  taken  to  keep  customers 
informed  regarding  all  proceedings;  criticism  is  disarmed 
by  frankness  and  publicity. 

All  this  sounds  "too  good  to  be  true,"  but  it  is  far 
within  the  truth. 

To  be  more  specific;  one  association  was  so  pleased 
with  the  operation  of  the  open  price  plan  that  it  gave 
a  dinner  to  customers  and  urged  them  to  adopt  the  plan. 

The  customers  did  so,  and  naturally  held  their  own 
meetings;  but  within  a  year  and  a  half  the  two  associations 
were  holding  joint  meetings,  and  the  first  adopted  a  reso- 
lution throwing  open  to  their  customers  all  price  informa- 
tion on  file  in  their  secretary's  office. 

When  the  first  set  of  men  first  met  it  was  with  doors 
tightly  closed,  so  their  customers  would  not  even  hear  of 
the  meeting;  now  they  meet  with  customers  in  the  room 
and  each  member  answers  freely  and  frankly  every  ques- 
tion a  customer  may  ask  about  prices. 

What  have  been  the  effects? 

Greater  stability  of  prices  at  normal  levels  without  at- 
tempting arbitrarily  to  control  prices. 

Cutting  out  of  secret  rebates  and  discounts. 

Treating  of  all  customers  fairly  and  on  a  footing  of 
equality. 

Lifting  the  entire  industry  to  a  higher  level. 

The  helping  of  competitors  who  are  not  members,  as 
those  competitors  have  frankly  stated. 


152  THE  NEW  COMPETITION 

XXVIII 

In  another  and  very  important  industry  there  was  an 
old  and  practically  moribund  association  of  thirty-five 
members. 

An  open-price  association  was  organized  for  the  free 
interchange  of  all  prices  actually  made. 

Only  sixteen  of  the  thirty-five  members  went  into  the 
open-price  association. 

Did  that  make  any  difference  in  the  meeting  of  all  as 
theretofore?    Not  at  all. 

The  usual  regular  monthly  meetings  were  held,  and 
a  visitor  would  be  unable  to  tell  who  in  the  room  were 
in  the  open  price  section  and  who  were  not.  Sometimes  an 
open  price  member  presides,  sometimes  one  who  is  not. 
It  makes  no  difference.  All  the  discussions  are  frank  and 
free. 

After  going  along  six  months,  the  members  of  the 
open  price  section  were  so  pleased  with  the  plan  they 
passed  a  formal  resolution  instructing  their  secretary  to 
send  all  open  price  information  on  file  in  his  office  to  all 
the  other  members  free  of  cost  for  sixty  days,  simply  to 
convince  the  others  that  publicity  is  a  good  thing. 

A  number  favored  continuing  the  distribution,  whether 
the  other  members  joined  the  open  price  section  or  not, 
but  others  felt  that  men  who  received  the  open  price  service 
ought  to  bear  a  share  of  the  expense  of  same,  and  the 
expense  is  not  light  in  that  industry,  since  the  price  fluctu- 
ations are  rapid,  often  hundreds  per  day  pouring  in  for 
distribution. 

XXIX 

That  the  open  price  policy  does  not  result  in  any  arbi- 
trary or  unfair  advance  in  prices  is  evidenced  by  the  fact 


OPEN-PRICE  ASSOCIATION  153 

that  nearly  all  these  associations  urge  the  companies  from 
whom  they  buy  to  adopt  the  policy.  Would  they  do  that 
if  they  thought  the  plan  controlled  and  advanced  prices? 
Hardly. 

Several  associations  have  taken  the  pains  to  invite  the 
men  from  whom  they  buy  to  attend  meetings  and  become 
familiar  with  the  plan. 

Why  do  they  do  this? 

Because  the  plan  leads  to  stability  of  prices  at  fair 
levels,  and  it  tends  to  cut  out  secret  rebates  and  unfair 
advantages  in  prices  and  terms. 

Every  intelligent  buyer  wishes  to  reduce  the  gambling, 
the  speculative,  the  uncertain  element  in  his  business  to 
a  minimum. 


XXX 

A  prominent  official  of  one  of  the  large  steel  companies  ^ 
has  advocated  an  open  price  association  of  purchasing 
agents  of  railroads,  urging  in  support  of  his  proposition  the 
following : 

"A  salesman  selling  a  standard  article  once  told  the 
writer  that  he  had  sold  that  same  article  in  one  day  to 
the  purchasing  agents  of  three  great  railroads,  and  at 
a  different  price  to  each.  The  writer  knows  of  one  large 
railroad  system,  having  two  purchasing  agents,  which  buys 
the  same  article,  a  mechanical  specialty,  for  two  prices. 
What  chance  have  the  purchasing  agents  of  any  industry 
to  throw  their  influence  toward  price  stability,  when  such 

1  Mr.  John  C.  Jay,  Jr.,  Vice-President  and  General  Manager  of 
Sales,  Pennsylvania  Steel  Co.  See  his  admirable  article,  "The  Pur- 
chasing Agent  and  Publicity,"  The  Iron  Age,  January  30,  1913,  Vol. 
91.  p.  310.  Mr.  Jay  is  a  consistent  advocate  of  the  open  price  policy, 
believing  that  it  is  as  advantageous  for  buyer  and  consumer  as  it  is 
for  manufacturer  and  seller. 


154  THE  NEW  COMPETITION 

lost  motion  is  found  in  one  corporation?  How  can  such 
things  be?  They  exist  merely  because  purchasing  agents 
today  have  no  common  meeting  ground,  no  contacts  with 
each  other,  no  publicity.  The  very  salesman  who  boasted 
of  selling  his  commodity  at  three  different  prices  was 
guilty  of  an  economic  misdemeanor.  The  railroads  are 
great  public  utilities.  It  is  to  the  advantage  of  all  that 
they  be  efficiently  and  economically  managed.  As  they 
touch  intimately  every  single  industry  in  a  most  vital 
point,  their  ability  to  prosper  and  give  adequate  service 
is  of  interest  to  all.  It  is  essential  that  they  be  competently 
administered.  They  should  pay  fair  prices  for  their  equip- 
ment and  maintenance,  yet  every  industry  should  cooperate 
in  their  problems.  The  remedy  for  all  such  abuses  is 
cooperation — cooperation  by  publicity.  Organization  to 
secure  such  proper  publicity  and  cooperation  is  necessary, 
and  this  implies  an  association  of  purchasing  agents.  No 
honest  manufacturer  has  anything  to  fear  from  such  an 
association  of  purchasing  agents,  properly  organized,  with 
proper  purposes,  and  with  its  full  publicity  and  exchange 
of  price  information  and  shop  talk.  It  would  aid  in  the 
free  and  speedy  operation  of  the  law  of  supply  and  demand ; 
it  would  check  and  control  speculative  buying  and  the  ag- 
gression of  the  middleman;  it  would  be  a  formidable 
weapon  against  every  form  of  secret  dishonesty,  for  mem- 
bership in  such  an  association  could  be  made  to  mean  char- 
acter. It  would  raise  the  tone  and  morals  of  every  indus- 
try that  felt  its  contact. 

"The  honest  manufacturer  welcomes  intelligent  open 
buying.  The  long-established  policy  of  publicity  in  Gov- 
ernmental work  has  hurt  no  one,  the  manufacturer  least 
of  all.  No  advocacy  is  here  made  of  the  application  to 
private  corporations  of  the  red  tape  and  safeguards  neces- 
sary in  Governmental  work.  The  point  at  issue  is  that 
we  have  traditionally  become  wedded  to  the  secret  price, 


OPEN-PRICE  ASSOCIATION  155 

and  are  ridiculously  afraid  that  our  competitor  will  learn 
our  prices.  The  absurdity  of  this  lies  in  the  fact  that  any 
proper  selling  organization  prides  itself  on  its  ability  to  find 
out  what  its  competitors  are  quoting  and  furnishing.  This 
very  ability  leads  often  to  abuses,  which  it  is  to  the  interest 
of  the  industry  to  correct.  Rather  than  to  fear  such  an 
association  of  purchasing  agents,  if  organized  on  proper 
lines,  we  should  recognize  that  it  would  create  higher  stand- 
ards, that  it  would  strengthen,  conserve  and  stabilize." 

XXXI  T-: 

While  there  are  a  number  of  associations  in  open  and 
successful  operation,  it  is  also  true  that  more  have 
purported  to  try  the  plan  and  failed — failed  mainly  be- 
cause they  sought  to  use  the  plan  as  a  cloak  for  price- 
fixing. 

Usually  these  attempts  are  made  with  subservient  and 
inefficient  secretaries  and  without  counsel — they  are  fore- 
doomed to  failure. 

The  open  price  does  not  control  prices  and  end  competi- 
tion, hence  men  who  wish  to  do  those  things  are  disap- 
pointed. Only  broad-minded  and  far-sighted  men  have 
the  patience  to  follow  the  plan  and  look  for  results  in  the 
future.  It  is  the  application  of  scientific  methods  to 
competitive  conditions,  and  must  be  worked  out  by  men 
of  enthusiasm  and  intelligence,  and  it  requires  from  three 
to  six  months  of  hard  work  to  get  an  open  price  association 
in  even  fairly  efficient  operation;  and  each  year  it 
improves. 

Old  men  in  business  do  not  take  kindly  to  the  new 
suggestions.  It  is  hard  to  get  it  into  the  head  of  the  man 
over  sixty,  almost  impossible  if  he  is  fifty.  It  is  practically 
useless  to  try  to  convert  the  man  who  has  "built  up  my  own 
business  in  my  own  way.'* 


i:-    -;i 


156  THE  NEW  COMPETITION 

They  are  blind  to  the  truth  that  no  man  can  build  up 
a  business  alone. 

The  community  is  the  greater  partner. 

True  success  is  in  proportion  to  the  extent  the  com- 
munity's interest  is  recognized. 

There  will  have  to  be  a  lot  of  first-class  funerals  in 
many  of  the  large  industries  of  this  country  before  any 
progress  is  made  along  new  lines. 

The  other  day  I  heard  an  old  man  at  the  head  of  a  large 
company  say: 

"I  go  on  the  theory  that  if  I  can't  get  an  order  it's 
good  business  to  make  my  competitor  lose  money  on  it." 

That  man  will  go  to  his  grave  without  a  glimmer  of  the 
great  law  that  a  man  prospers  in  business  as  his  competitors 
prosper. 

The  man  who  builds  on  the  losses  of  others  is  a  greater 
menace  to  the  community  than  the  poor  devil  who  steals 
a  pocket-book. 

The  future  of  the  country  depends  upon  you  young  men. 
Don't  do  in  all  things  as  your  fathers  have  done;  don't 
always  try  to  walk  in  their  footsteps;  go  forward;  profit 
by  their  mistakes ;  follow  better  and  finer  ideals ;  and  begin 
by  revising  practically  every  maxim  that  has  heretofore 
prevailed  in  the  business  or  industry  with  which  you  are 
connected.! 


CHAPTER    XI 
HARMONY 

I 

Cooperation  means  a  broader  outlook  than  the  mere 
quest  of  money. 

It  may  be  said  once  for  all  that  no  organization  can 
live  beyond  the  exigencies  of  the  hour  unless  it  has  an  in- 
terest above  dollars  and  cents.  The  desire  to  make  greater 
profits  may  bring  men  together  but  it  will  not  hold  them 
long,  the  motive  is  too  sordid  to  encourage  any  large  de- 
gree of  enthusiasm,  and  without  enthusiasm  no  movement 
can  go  forward. 

Heretofore  combinations,  associations,  pools,  agree- 
ments have  all  been  for  the  one  object,  higher  prices.  Men 
who  disliked  each  other  heartily  came  together  for  the 
sole  purpose  of  making  money,  they  were  willing  to  swal- 
low their  aversions  for  the  sake  of  a  few  dollars;  they 
would  lunch  and  dine  together  with  a  great  show  of  friend- 
ship only  to  denounce  each  other  roundly  on  separating. 

In  these  combinations  to  advance  prices  the  man  who 
had  a  decent  regard  for  his  word  was  always  the  loser 
since  he  adhered  to  the  understanding  longer  than  the 
others. 

There  being  nothing  to  hold  the  members  together  ex- 
cept an  agreement  that  few  intended  to  keep,  it  is  not  sur- 
prising the  old  line  associations  fell  apart  about  as  fast  as 
they  were  brought  together. 

M7 


158  THE  NEW  COMPETITION 


II 


Men,  whether  in  an  association  or  not,  should  consider 
the  relations  enumerated  below,  but  when  organized  they 
ffiust  consider  them. 

A.  Relations  of  members  to  one  another. 

B.  Relations  with  employees. 

C.  Relations  with  those  to  whom  they  sell — customers. 

D.  Relations  with  those  from  whom  they  buy. 

E.  Relations  to  the  public  generally. 


Ill 


If  an  association  is  small  all  it  can  do  is  to  keep  in  mind 
and  give  some  serious  thought  to  the  several  relations 
named,  especially  to  (B)  relations  with  employees,  (C) 
relations  with  customers  and  (E)  relations  to  the  public. 
It  is  hardly  conceivable  that  two  or  three  men  in  a  given  in- 
dustry could  come  together  without  doing  things  that 
would  affect  those  three  classes. 

If  an  association  has  a  large  number  of  members  stand- 
ing committees  should  be  appointed  to  deal  systematically 
with  all  matters  affecting  these  relations. 


RELATIONS  OF  MEMBERS  ONE  TO  ANOTHER 
I 

Among  the  duties  of  the  committee  having  this  in 
charge  would  be  the  following : 

(a)  Gather  information  regarding  different  methods 
of  cost-estimating  used  by  members. 


HARMONY  159 

(b)  Work  out  a  comprehensive  and  scientific  cost  sys- 
tem, to  the  end  that  each  member  will  charge  against  all 
work  all  items  that  should  be  charged. 

If  the  association  should  do  no  more  than  this  it  would 
justify  its  existence. 

In  a  meeting  of  representatives  of  twelve  large  manu- 
facturing companies  the  matter  of  costs  came  up  for  hot 
discussion;  it  developed  that  no  two  agreed  upon  all  the 
items  that  should  be  charged  against  a  given  piece  of  work. 

At  length  one  remarked, 

"You  see,  gentlemen,  most  of  our  troubles  are  due  to 
ignorance  of  costs;  we  think  we  are  bidding  a  profit  but 
it  is  largely  guess-work." 

And  another  said, 

"If  every  man  would  figure  his  costs  correctly  and  know 
what  he  is  doing,  there  would  be  no  need  of  any  agreement 
regarding  prices." 

The  differences  of  opinion  and  practices  developed  in 
the  discussion  were  so  surprising  that  a  competent  commit- 
tee was  appointed  to  work  out  a  cost  system  applicable  to 
the  industry.  At  the  end  of  about  four  months  of  inquiry 
and  comparison  of  data  a  report  was  made  and  a  schedule 
prepared  that  showed  every  item  of  cost  entering  into  a 
piece  of  work.  With  that  blank  in  front  of  him  no  mem- 
ber could  have  any  excuse  for  omitting  in  his  estimates 
legitimate  items  of  expense;  if  he  did  so  he  deliberately 
cheated  himself. 

The  blank  contained  no  figures,  the  committee  made  no 
attempt  to  indicate  what  amounts  should  be  charged  under 
the  various  heads;  the  schedule  was  simply  to  make  sure 
no  proper  item  should  be  overlooked. 

It  was  recognized  that  costs  differ,  but  it  was  plain  that 
actual  differences  under  a  scientific  system  would  not  be  so 
wide  as  those  under  unscientific  practices. 

The  adoption  of  a  scientific  system  of  cost  accounting 


i6o  THE  NEW  COMPETITION 

means  more   careful  bidding,   and  more  careful   bidding 
means  more  stable  prices. 


II 


(c)  This  same  committee  may,  with  propriety,  care- 
fully investigate  and  consider  the  situation  of  each  com- 
peting plant  with  reference  to  others.  It  is  only  by  a  care- 
ful comparison  of  data  that  it  can  be  ascertained  whether 
a  given  plant  has  any  territory  or  customers  that  naturally 
depend  upon  it — in  other  words,  whether  it  has  an  economic 
value  to  the  community. 

This  investigation  has  nothing  to  do  with  any  scheme 
for  allotting  or  apportioning  business ;  it  simply  seeks  to  get 
at  the  facts. 

A  plant  is  located,  say,  in  Minneapolis;  it  is  obliged  to 
buy  all  its  raw  material  in  Pennsylvania;  it  is  in  competi- 
tion with  Pennsylvania  companies  that  ship  the  finished 
product  to  the  Northwest;  on  its  face  the  situation  seems 
to  look  desperate  for  the  Minneapolis  company,  but  there 
may  be  local  and  territorial  or  transportation  conditions 
which  enable  it  to  compete  with  companies  situated  near 
the  base  of  supplies. 

These  conditions  should  be  inquired  into  and  the  facts 
brought  out  so  that  members  may  compete  intelligently  and 
fairly.  If  the  Pennsylvania  companies  are  bidding  reck- 
lessly for  business  they  are  not  fairly  entitled  to  they  may 
depress  prices  for  a  time,  but  in  the  end  the  waste  must 
be  recouped  from  the  public,  and  if  the  local  company  is 
driven  out  the  entire  Northwest  may  feel  the  loss. 

Such  questions  are  large  economic  problems  calling  for 
depth  of  insight  and  breadth  of  view.  The  right  commit- 
tee could  make  a  report  that  would  set  forth  in  detail  the 
advantages  and  disadvantages  of  every  member  of  the  as- 
sociation, and  in  so  far  as  it  can  legally  do  so  it  should  be 


HARMONY  i6i 

the  effort  of  the  association  to  help  each  member  to  hold 
the  trade  legitimately  belonging  to  it,  as  against  unfair 
and  destructive  competition. 

No  action  would  be  necessary  in  most  cases,  the  mere 
bringing  to  light  all  facts  and  conditions  would  suffice.^ 


Ill 


(d)  The  committee  would  also  deal  with  all  lapses  from 
the  frankness  and  truthfulness  that  should  prevail ;  it  would 
endeavor  to  key  members  up  to  high  standards  in  all  deal- 
ings and  all  competitions ;  it  would  go  farther  and  endeavor 
to  get  members  to  lift  their  salesmen  and  representatives 
to  the  level  of  the  open-price  policy. 

All  these  things  are  of  greater  value  to  the  small  pro- 
ducer than  to  the  large.  Most  large  corporations  have 
scientific  cost  systems  and  means  for  learning  all  that  is 
going  on  in  the  country.  It  is  the  small  producer  who  is 
at  a  disadvantage  and  who  will  reap  the  greater  percentage 
of  advantage  from  the  association  and  the  work  of  the 
committees. 

The  writer  often  hears  the  representatives  of  large 
corporations  say: 

"What  have  we  to  gain  by  teaching  the  little  fellow 
how  to  run  his  business?" 

More  than  one  thinks ;  first  of  all  the  friendship  of  the 
little  fellow  instead  of  his  enmity;  secondly,  the  friendship 
of  the  little  fellow's  friends,  and  he  has  a  lot  of  them; 
thirdly,  more  intelligent  competition  and  that  means  dollars 
and  cents. 

*  Some  of  the  practices  referred  to  in  this  section  fall  under  Sec. 
2  of  the  Clayton  Act,  and  may  be  dealt  with  by  the  new  Trade  Com- 
mission. 


1 62  THE  NEW  COMPETITION 


RELATIONS    WITH    EMPLOYEES 


Only  an  association  can  deal  with  the  many  and  complex 
questions  that  arise  regarding  labor. 

It  goes  without  saying  that  if  employees  are  organized 
employers  must  be — the  individual  employer  is  powerless  to 
accomplish  the  things  labor  demands  of  him ;  he  can  neither 
raise  wages  nor  lessen  hours  without  the  possibility  of  plac- 
ing himself  at  a  disadvantage  as  against  competitors  who 
get  more  labor  for  their  money. 

It  is  not  a  question  of  power,  of  force,  of  body  against 
body  in  a  spirit  of  hostility. 

The  conduct  of  labor  unions  may  be  so  arbitrary  and  op- 
pressive, their  demands  so  unfair  and  outrageous  that  em- 
ployers must  organize  to  resist,  but  such  fighting  organiza- 
tions have  nothing  in  common  with  the  associations  rec- 
ommended in  this  book. 

Under  no  circumstances  should  an  open-price  associa- 
tion be  drawn  into  any  conflict  with  labor,  with  the  public 
or  with  the  law. 

Should  employers  who  happen  to  be  members  of  an 
open-price  association  be  involved  in  a  controversy  with 
labor,  they  must  conduct  their  fights  outside  the  associa- 
tion, the  influence  of  the  association  is  thrown  in  the  direc- 
tion of  peace  and  harmony,  representatives  of  labor  are  not 
only  free  to  attend  its  meetings  but  should  be  welcomed 
and  the  logical  outcome  of  the  movement  is  the  participa- 
tion of  employees  in  many  of  the  deliberations  of  the  asso- 
ciation. 

It  may  be  stated  with  little  danger  of  contradiction  that 
no  association  that  has  anything  to  do  with  costs  and  prices 


HARMONY  163 

is  complete  without  the  participation  of  labor,  for  labor  is 
cost. 

However  unjust  and  arbitrary  some  of  the  demands  of 
labor  may  be,  they  are  not  all  so ;  however  extreme  some  of 
the  theories  of  the  modern  social  reformer  may  sound, 
many  of  them  are  in  process  of  realization.  It  is  the  busi- 
ness of  the  far-sighted  employer  to  meet  all  demands  for  re- 
form in  a  spirit  of  sympathetic  cooperation  instead  of  a 
spirit  of  stubborn  opposition. 


II 


The  history  of  labor  is  one  long  story  of  contest  and 
conquest.  There  have  been  set-backs  in  this  country  or 
that,  in  this  century  or  that,  but  the  onward  movement  has 
been  checked  only  to  gain  greater  headway. 

It  is  disheartening  to  see  how  stubbornly  employers  the 
world  over  have  resisted  this  movement,  fought  it  at  every 
turn,  blocked  it  with  laws,  met  it  with  armies — and  all  to 
what  purpose? 

At  most  the  postponement  of  the  inevitable  for  a  half 
century  or  so,  and  the  creation  of  class  hatred  and  ran- 
cor that  will  not  die  for  generations  to  come. 

One  of  the  objects  of  the  new  competition  is  to  alter 
these  conditions.  In  theory  the  employer  is,  and  in  the  end 
he  must  be  in  fact  in  the  attitude  of  the  master  workman 
who  uses  his  brains  and  experience  to  direct  those  under 
him  in  such  a  way  that  the  best  interests  of  all  will  be 
served;  to  do  this  successfully  he  must  be  sure  of  the 
hearty  cooperation  of  all,  and  he  cannot  be  sure  of  that 
unless  all  are  welded  together  in  one  association  instead 
of  being,  as  now,  members  of  opposed  organizations  or 
unions. 

In  taking  this  far  look  ahead  the  open-price  association 


1 64  THE  NEW  COMPETITION 

does  not  mean  a  drift  toward  socialism,  which  involves  the 
intervention  of  the  state,  but  rather  toward  a  higher  and 
purer  individualism,  an  individualism  developed  and  re- 
strained in  voluntary  organizations,  with  a  minimum  of  in- 
tervention on  the  part  of  the  state. 

Cooperation  stands  midway  between  the  rank  selfishness 
of  individualism  and  the  ultra-altruism  of  socialism;  it 
offers  a  practical  middle  ground  between  the  two  extremes ; 
rightly  developed  it  will  suppress  the  evils  of  the  one  and 
yield  the  benefits  promised  by  the  other.  In  a  sense  it  is 
the  only  refuge  against  Socialism. 


Ill 

There  is  much  of  a  practical  nature  the  open-price  asso- 
ciation may  accomplish  through  its  committee  on  relations 
with  employees. 

Reports  should  be  called  for  from  each  member  regard- 
ing: 

(a)  Safety  appliances  in  use. 

(b)  Hygienic  and  sanitary  conditions,  including  recre- 
ation facilities. 

(c)  Sex,  age  and  nationalities  of  employees. 

(d)  Wages  paid  and  hours  of  labor. 

(e)  Provisions  for  injury,  disability  or  death,  and  for 
pensions. 

IV 

Ten  years  ago  nearly  all  employers  would  have  con- 
sidered inquiries  along  the  above  lines  the  acme  of 
impertinence;  to-day  there  are  comparatively  few  large 
corporations  that  do  not  spend  time  and  money  in  sys- 
tematic investigation  and  improvements  in  those  direc- 
tions. 


HARMONY  165 

A  few  years  have  worked  great  changes  in  conditions 
and  public  sentiment  and  much  of  the  credit  is  due  the 
large  corporation — the  individual  employer  lags  far  be- 
hind.^ As  a  rule  he  has  neither  the  time  nor  the  disposi- 
tion to  consider  broadly  the  relations  between  the  industry 
and  the  labor  employed  therein;  the  problem  is  far  beyond 
him.  Only  a  large  corporation  or  an  association  has  the 
necessary  facilities  for  making  investigations  and  experi- 
ments. 

It  is  needless  to  say  that  money  spent  in  these  ways  is 
money  saved ;  the  efforts  are  sound  and  business-like  rather 
than  philanthropic.  In  other  words  it  pays  to  do  all  these 
things, 

A  safety  appliance  may  be  a  better  investment  than  the 
machine  to  which  it  is  applied.  A  hospital  returns  its  cost 
many  times  over.  A  play-ground  is  the  cheapest  realty  an 
employer  can  buy. 

*Mr.  John  A.  Fitch,  author  of  "The  Pittsburgh  Survey,"  in  the 
volume  devoted  to  the  Steel  Workers,  says:  "With  the  appointment 
of  a  central  Committee  of  Safety,  in  April,  1908,  the  United  States 
Steel  Corporation  entered  upon  an  energetic  campaign  to  bring  safety 
standards  of  all  its  subsidiary  companies,  not  only  up  to  the  levels 
set  by  the  m©st  progressive  plants  among  them,  but  to  overhaul  all 
plants  from  the  standpoint  of  protective  machinery,  to  define  safety 
specifications  for  all  new  equipment,  and  to  work  out  new  methods  of 
prevention.  Experts  employed  by  the  constituent  companies  are  devot- 
ing their  whole  time  to  studying  the  problem.  A  system  of  inspection 
has  been  introduced,  and  the  inspectors  in  each  plant  make  regular 
reports,  with  recommendations,  to  those  in  authority.  In  some  of  the 
mills  committees  of  workmen  cooperate,"  then,  after  speaking  of  the 
difficulties  in  the  way  of  needed  changes,  Mr.  Fitch  goes  on,  "No  large 
corporation  is  manifesting  more  intelligent  determination  in  regard  to 
accidents  than  the  United  States  Steel  Corporation.  Its  safety  men 
have  a  big  work  before  them,  one  which  is  rendered  trebly  difficult  by 
the  nature  of  the  industry,  by  the  speeding  up  and  the  twelve-hour  day, 
and  by  the  years  of  inexcusable  negligence  and  downright  disregard  of 
human  life  which  characterized  the  steel  industry  in  the  past."  Pages 
69-70. 

See  also,  "Safety  Provisions  in  the  United  States  Steel  Corpora- 
tion," by  David  S.  Beyer,  Chief  Safety  Inspector,  American  Steel  and 
Wire  Co.,  printed  as  Appendix  III  in  Eastman's  "Work  Accidents  and 
the  Law." 


1 66  THE  NEW  COMPETITION 

Good  wash-rooms,  good  dressing-rooms,  good  work- 
rooms, good  eating  rooms,  good  rest  and  recreation  rooms, 
in  time  will  be  considered  just  as  essential  as  good  floors, 
good  walls  and  good  roofs. 

It  is  difficult,  if  not  impossible  to  force  all  these  things 
by  law  against  stubborn  opposition,  but  associations  can 
teach  men  their  necessity,  their  value,  and  dissipate  preju- 
dice and  ignorance.  The  best  way  to  teach  is  by  example^ 
and  results;  when  one  employer  hears  another  tell  what  he 
has  done  and  the  good  results  he  has  obtained  the  words 
sink  deep  and  prove  fruitful ;  they  are  worth  a  hundred  ar- 
bitrary factory  inspectors. 


Systematic  inquiries  should  be  made  and  results  tabu- 
lated regarding  ages,  sex  and  nationalities  of  employees 
and,  in  this  connection,  wages  paid  and  hours  of  labor. 

At  present  this  information  in  a  general  way  is  given 
reluctantly  to  census  takers  and  other  government  agents. 

Strange,  is  it  not,  that  keen  business  men  should  not  see 
the  advantage  of  doing  for  themselves,  and  doing  thor- 
oughly, what  the  government  is  doing  imperfectly  and 
clumsily  ? 

Nothing  is  more  certain  than  that  the  ages,  sex,  nation- 
alities of  employees  with  wages  paid  and  hours  of  labor 
will  in  time  be  systematically  and  accurately  ascertained  in 
not  only  every  industry  but  in  every  unit  of  industry  and 
published.  The  time  is  rapidly  approaching  when  neither 
the  public  nor  those  directly  interested — the  employers 
themselves — will  be  satisfied  with  the  generalizations  of 
census  reports,  with  totals,  percentages  and  averages,  which 
mean  a  good  deal  to  the  country  as  a  whole  but  very  lit- 
tle to  John  Smith  in  the  conduct  of  his  particular  business. 
What  John  Smith  wants  to  know  is  what  his  competitor  in 


HARMONY  167 

the  next  town  pays  and  the  labor  he  employs,  whether  it  is 
convict  labor,  child-labor,  female  labor,  or  competent  able- 
bodied-man  labor. 

As  a  matter  of  fact  employers  suffer  from  census  sta- 
tistics, for  few  things  are  more  misleading-  than  large  gen- 
eralizations and  huge  totals;  everybody  knows  how  they 
are  used  on  both  sides  of  every  argument — for  and  against 
high  tariffs,  for  and  against  higher  wages,  for  and  against 
shorter  hours,  child-labor,  employment  of  women,  etc.,  etc. 
They  mean  little,  prove  nothing.  When  an  employer  is 
urged  by  argument  or  law  to  improve  conditions  in  his 
shop  he  does  not  go  to  census  publications  or  bureau  re- 
ports, he  asks  himself  the  one  vital,  selfish  question,  how 
can  I  improve  conditions  without  losing  money?  And  that 
question  he  cannot  answer  without  intimate  knowledge  of 
what  his  competitors  are  doing  and  proposing  to  do.  If 
all  act  together  a  great  deal  can  be  done  without  dislocating 
trade,  but  if  one  is  forced  by  law  to  take  the  initiative  in 
advancing  wages,  shortening  hours,  or  improving  condi- 
tions he  may  find  himself  in  a  position  where  he  can  no 
longer  compete  on  a  footing  of  equality.  True,  the  better- 
ing of  conditions  means  greater  production,  but  the  iso- 
lated employer  is  afraid  his  cost  of  production  will  advance 
beyond  his  competitors',  and  he  dares  not  risk  the  change. 

Labor  unions  in  their  fights  for  better  conditions  are 
constantly  met  by  the  plea  that  if  they  advance  wages  in 
one  locality  and  not  in  all  they  will  ruin  those  who  pay 
more,  and  they  are  urged  not  to  insist  upon  an  advance  in 
one  place  unless  every  competitor  is  compelled  to  pay  the 
same.  In  other  words  the  employers  ask  the  unions  to  do 
for  them  what  they  by  cooperation  should  do  for  them- 
selves— ^bring  about  fair  conditions. 


1 68  THE  NEW  COMPETITION 


VI 


In  equipping  factories  with  safety  appliances  many  em- 
ployers have  already  gone  far  beyond  the  requirements  of 
any  law,  and  in  their  discussions  of  the  wisdom  and  econ- 
omy of  improved  sanitary,  hygienic,  rest  and  recreation 
conditions  progressive  employers  are  far  in  advance  of 
legislation.  But  these  same  employers,  advanced  as  they 
are  along  certain  lines,  lag  behind  when  it  comes  to  dealing 
in  the  same  big  way  with  wages,  hours  of  labor,  ages,  sex 
and  nationalities  of  employees;  they  lag  behind  because 
these  questions  cannot  be  dealt  with  in  a  big  way  without 
cooperation.  They  may  be  dealt  with  after  a  fashion  by 
laws  which  compel  all  to  do  certain  things,  but  that  is  a 
crude  way  of  working  out  reforms. 

Law  is  a  rule  of  conduct  imposed  by  a  legislative  body 
made  up  of  men,  not  one  of  whom  may  have  the' slightest 
first  hand  knowledge  of  a  given  industry,  yet  they  are 
forced  to  say  how  the  industry  shall  be  conducted — why? 
because  the  men  in  the  industry  will  not  get  together  and 
frame  their  own  rules  of  conduct. 

In  certain  branches  of  the  steel  industry  the  twelve  hour 
day  prevails.  This  means  that  in  certain  continuous  proc- 
esses the  men  on  each  shift  are  compelled  every  two  weeks 
to  work  straight  through  twenty-four  hours. 

Andrew  Carnegie  in  1886  wrote,  "At  present  every  ton 
of  pig  iron  made  in  the  world,  except  at  two  establishments, 
is  made  by  men  working  in  double  shifts  of  twelve  hours 
each,  having  neither  Sunday  nor  holiday  the  year  around. 
Every  two  weeks  the  men  change  to  the  night  shift  by 
working  twenty-four  hours  consecutively."^ 

^  The  Forum,  Vol.  I,  1886,  p.  544.  This  entire  subject  is  ably  dis- 
cussed by  Mr.  Fitch,  in  his  book,  "The  Steel  Workers";  see  especially 
Chapter  XIII. 


HARMONY  169 

Conditions  have  improved  considerably  since  1886,  but 
the  twelve-hour  day  and  the  twenty-four  hour  turn  still 
exist. 

A  twelve-hour  day  is  bad  enough,  a  twenty-four-hour 
turn  every  two  weeks  seems  almost  inhuman,  but  these  are 
conditions  that  have  grown  up  with  and  out  of  the  indus- 
try. No  one  in  particular  is  to  blame.  The  men  them- 
selves have  opposed  changes  for  fear  the  changes  would 
mean  less  money  in  the  end.^ 

In  19 10  the  Brotherhood  of  Locomotive  Engineers 
adopted  the  following  with  reference  to  shorter  hours : 

"Pertaining  to  the  hours  of  service  of  16-hour  law, 
with  proposed  amendments,  and  a  substitute  to  reduce  the 
hours  to  14,  your  committee  examined  the  chairmen  of 
several  important  systems  and  questioned  many  delegates 
from  different  sections  of  the  country,  and  find  that  while 
there  is  a  general  desire  for  reduction  of  the  hours  of 
service,  several  favoring  a  reduction  to  10  and  even  8 
hours  per  day,  the  majority  are  opposed  to  changing  the 
hours  from  16  to  14,  for  the  reason  that  it  would  injure 
a  greater  number  of  engineers  than  could  possibly  be  bene- 

*  Years  ago  the  Amalgamated  Association  of  Iron  and  Steel  Work- 
ers adopted  a  very  short-sighted  policy.  "As  improvements  in  steel  mill 
construction  made  it  possible  to  finish  a  turn's  work  in  a  shorter  time 
than  twelve  hours,  there  came  to  be  periods  of  idleness  between  the 
shifts.  This  is  undesirable  in  a  mill  of  this  character,  for  sheet-iron 
is  rolled  so  thin  that  good  results  can  be  obtained  only  when  the  rolls 
are  expanded  by  the  heat.  The  rolls  are  so  shaped  that  when  cold 
they  cannot  turn  out  a  steel  of  uniform  thickness;  consequently,  after 
a  period  of  idleness  hot  scrap  is  sent  through  them  until  they  reach  the 
correct  expansion.  To  avoid  these  periods  of  idleness,  the  manufac- 
turers tried  to  introduce  an  eight-hour  day.  This  was  resisted  by  the 
union.  In  1883  it  was  reported  to  the  Amalgamated  Association  that 
Moorhead,  McCleane  &  Company,  of  Pittsburgh,  were  about  to  force 
the  eight-hour  day  upon  their  men.  This  was  cited  as  an  example  of 
the  'encroachments  of  aggressive  and  designing  capital,'  and  the  execu- 
tive committee  ruled  that  under  no  circumstances  should  a  mill  go  on 
three  turns,"  John  A.  Fitch,  "The  Steel  Workers,"  pp.  93-94,  referring 
to  Journal  of  Proceedings  of  Amalgamated  Association,  1883,  p.  171. 
In  spite  of  the  action  of  the  executive  committee  of  the  union  some 
of  the  mills  did  go  on  eight-hour  turns,  and  in  1884  the  association 
revoked  the  charters  of  two  of  the  local  lodges  for  not  resisting.  See 
Journal  of  Proceedings,  A.  A.  I.  and  S.  W.,  1885,  p.  1547. 


170  THE  NEW  COMPETITION 

fited  thereby,  resulting,  as  they  fear,  in  unsettling  condi- 
tions, changing  runs  and  lay-overs,  reducing  incomes,  and 
perhaps  breaking  up  homes." 


VII 


The  public  do  not  fully  understand  these  things;  it 
thinks  the  fight  for  an  eight-hour  day  is  a  fight  between 
employee  and  employer.  It  is  not;  it  is  a  fight  by  both 
against  conditions. 

The  day  before  these  words  were  written  the  writer 
heard  a  prominent  steel  man  say  in  a  meeting,  "The  eight- 
hour  day  with  no  reduction  in  wages  will  be  the  best  thing 
that  can  happen  in  the  business,  and  I  am  ready  for  it  if 
you  are." 

Others  expressed  their  hearty  assent,  but  the  practical 
question  was  how  to  bring  it  about,  as  one  man  said, 

"We  represent  only  one-third  of  the  industry,  and  any- 
thing we  might  agree  upon  would^i't  bind  the  others." 

"If  they  were  all  in  our  association,"  the  first  started  to 
say. 

"Then  it  would  be  different,"  a  member  interrupted. 

The  matter  under  discussion  was  government  work  and 
the  proposition  of  the  government  to  approve  no  contracts 
that  did  not  contain  an  eight  hour  clause. 

"That  means,"  as  one  man  put  it,  "if  any  of  the  ma- 
terial we  put  into  the  government  work  is  made  by  men 
working  more  than  eight  hours  the  contract  is  void ;  where 
is  the  thing  to  stop?  Ore  goes  into  the  blast-furnace,  and 
pig  iron  goes  into  the  steel,  the  steel  goes  through  the  roll- 
ing mills — mine,  furnace  and  rolling  mill  work  twelve  hour 
shifts ;  if  you  take  a  government  contract  for  a  ton  of  plates 
you  will  have  to  work  eight  hour  shifts  from  mine  to  roll- 
ing mill." 


HARMONY  171 

An  extreme,  but  entirely  logical  illustration,  and  one 
that  shows  the  absurdity  of  trying  to  force  the  eight  hour 
day  by  so  indirect  a  method  as  introducing  such  clauses  in 
public  contracts. 

VIII 

The  eight-hour  day  is  an  economic  proposition  with 
large  sociological  and  ethical  bearings, — as  such  it  demands 
rational  consideration  and  scientific  treatment.  Above  all 
it  is  primarily  a  question  for  the  men  engaged  in  the  in- 
dustry— employers  and  employees — to  consider  and  settle, 
and  neither  side  is  in  a  position  to  consider,  much  less  dis- 
pose of  the  matter  without  associations  so  large  and  strong 
that  whatsoever  is  decided  as  for  the  best  will  be  adopted 
by  all. 

The  law  in  this  country  finds  it  difficult  to  deal  with 
particular  industries;  by  a  stretch  of  constitutional  con- 
struction it  does  reach  certain  extra-hazardous  occupa- 
tions, but  it  cannot  arbitrarily  single  out  this  or  that  indus- 
try and  establish  the  eight-hour  day  even  though  employers 
and  employees  say  they  want  it.  One  recalcitrant  employer 
or  employee,  invoking  his  constitutional  rights,  may  annul 
the  law. 

How  much  simpler  for  the  law  to  first  try  the  experi- 
ment of  encouraging  the  formation  of  associations  under 
conditions  of  publicity  and  proper  supervision,  and  leave 
to  them  and  their  employees  the  working  out  of  some  of 
these  problems. 

At  the  moment  the  law  takes  the  untenable  position  of 
positively  discouraging  the  formation  of  associations  of 
employers,  and  yet  lays  down  requirements  that  can  be 
intelligently  met  and  fully  complied  with  only  by  coopera- 
tion and  united  action. 

This  is  illustrated  in  the  manner  in  which  the  law  tries 


172  THE  NEW  COMPETITION 

to  deal  with  the  railroads  of  the  country;  they  are  not  ex- 
empt from  the  Sherman  law,  and  yet  the  practical  enforce- 
ment of  the  Interstate  Commerce  law  together  with  actual 
conditions  force  the  roads  into  traffic  associations  the  direct 
object  of  which  is  to  agree  upon  and  absolutely  control 
freight  and  passenger  charges. 

The  roads  could  not  comply  with  the  inter-state  com- 
merce law  and  the  orders  of  the  Inter-State  Commerce 
Commission  without  combining  and  cooperating  together. 

It  is  equally  true  that  corporations  and  individuals  en- 
gaged in  other  industries  cannot  meet  conditions  that  con- 
front them  and  comply  with  laws  directed  against  them 
without  combining  and  cooperating  together. 


PROVISIONS  FOR  INJURY,  DISABILITY  OR  DEATH,  AND 
PENSIONS 


Under  this  head  associations  organized  along  the  new 
lines  will  have  to  consider  some  of  the  most  vital  and  in- 
teresting problems  ever  presented  to  the  practical  mind  of 
man,  and  again  only  associations  can  adequately  discuss 
them,  individuals  may  form  theories,  but  they  are  apt  to 
be  partial  and  imperfect  and  even  if  sound  the  individual 
lacks  power  to  put  them  in  practice. 

II 

What  does  an  EMPLOYER  owe  an  employee  who  is 
injured,  disabled,  dies  or  grows  old  in  service?  That  is  the 
way  the  question  is  ordinarily  put  and  that  way  of  putting 
it  is  the  cause  of  nearly  all  the  confusion  of  ideas  and  laws 
that  prevail. 


HARMONY  173 

The  question  so  put  raises  an  ethical  problem,  whereas 
the  problem  is  essentially  economic. 

The  question  is  not  "What  does  the  employer  owe  an 
employee?"  but  ''What  does  the  INDUSTRY  oive  the  em- 
ployee zuho  is  injured,  or  disabled,  or  who  dies  or  grows 
old  in  service?" 


Ill 


The  employer  owes  the  employee  only  what  he  agrees 
to  pay  him,  and  the  rate  of  wages  is  largely  fixed  by  con- 
ditions over  which  the  individual  employer  has  little  con- 
trol. 

But  the  obligations  of  the  industry  toward  men  who 
give  their  health  and  lives  to  its  advancement  are  very 
different  and  it  is  these  obligations  society  and,  in  a  meas- 
ure, the  law  are  beginning  to  recognize. 

What  stands  most  in  the  way  of  their  recognition  is  the 
prevailing  idea  that  it  is  the  employer,  the  individual  who 
happens  to  be  at  the  head  of  the  business,  who  owes  the 
obligations  as  moral  duties. 

The  law  of  torts  as  between  master  and  servant  is  based 
upon  this  theory  of  moral  responsibility,  of  personal  blame, 
for  the  accident,  the  injury,  or  death.  And  as  the  master 
is  not  to  blame  for  a  servant's  growing  old  in  service,  the 
law  has  never  given  the  employee  compensation  for  old 
age,  though  so  far  as  he  is  concerned  old  age  may  be  more 
disastrous  than  the  loss  of  both  legs — in  the  end  it  is 
equivalent  to  death,  as  regards  productive  effort. 

The  very  phrase  "Employer's  liability"  which  heads  all 
chapters  on  the  subject  in  law  books  shows  the  personal, 
the  ethical  character  of  the  responsibility  assumed  to  under- 
lie the  claim  for  compensation. 

According  to  the  common-law  the  employer  is  liable 
only  for  injuries  caused  by  his  own  negligence,  direct  or 


174  THE  NEW  COMPETITION 

indirect,  and  the  master  may  be  negligent,  but  if  the  serv- 
ant's own  negligence  contributes  to  the  accident  or  injury 
he  cannot  recover. 

Later ^  it  became  the  law  that  if  one  servant  is  injured 
by  the  negligence  of  a  fellow  servant  he  cannot  recover. 
This  arbitrary  and  artificial  ruling  grew  out  of  the  theory 
of  personal  responsibility  and  it  found  many  of  its  modifi- 
cations in  refinements  upon  that  theory — such  as  that  if  the 
master  were  negligent  in  the  employment  of  an  incompetent 
servant  and  the  damage  were  caused  by  such  incompetency 
there  might  be  a  recovery,  unless  the  injured  servant  knew 
of  the  other's  incompetency  and  "assumed  the  risk,"  etc., 
etc. 

In  England  and  in  many  states  in  this  country  the 
"fellow-servant"  doctrine  has  been  modified  or  abolished 
by  statute.  Congress  has  passed  laws  concerning  it  for  the 
protection  of  employees  of  inter-state  carriers  and  of  de- 
partments of  the  government. 

Unhappily  all  legislation  on  the  subject  is  based  upon 
the  supposed  moral  responsibility  of  the  employer ;  the  sub- 
ject is  still  debated  as  if  it  were  an  issue  between  individ- 
uals; not  a  little  of  the  ill-feeling  that  exists  between  em- 
ployers as  a  class  and  employees  as  a  class  is  due  to  this 
fundamental  misconception  of  the  true  relationship  of 
labor  to  its  industry. 


IV 


If  a  man  is  injured  while  in  the  employ  of  John  Smith 
there  may  or  may  not  be  a  moral  responsibility  on  the  part 
of  Smith,  who  may  or  may  not  have  been  at  fault  person- 
ally, but  whatever  his  moral  or  ethical  responsibility  to  the 
injured  man,  his  economic  relation  remains  the  same. 

*This  doctrine  had  its  origin  in  this  country  in  Murray  vs.  So. 
Car.  Rd.  Co.  1841,  i  McMull.  L.  385. 


HARMONY  175 

Whether  Smith  carelessly  hits  one  of  his  men  on  the 
head  with  a  hammer,  or  whether  a  hammer  accidentally 
falls  from  the  floor  above  and  occasions  the  injury  makes 
all  the  difference  in  the  world  with  the  moral  responsibility 
of  Smith,  but  does  not  alter  one  iota  the  economic  rela- 
tion, which  is  that  of  a  man  working  in  a  given  industry, 
and  an  injury  in  the  course  of  the  employment. 

In  the  one  case  the  law  says  Smith  is  liable  to  the  man 
for  all  damages  sustained ;  in  the  other  neither  he  nor  any- 
one else  is.  If  the  man  is  paralyzed  from  the  blow  and  has 
no  savings  the  community  accepts  the  burden  and  sup- 
ports him  for  life  in  a  poorhouse. 

It  does  not  take  much  of  a  mind  to  see  there  is  some- 
thing wrong  here. 

Why  should  not  the  industries  that  reap  the  benefit  as- 
sume the  cost  of  caring  for  their  human  debris f 


The  world  is  progressing  and  of  late  the  economic  view 
is  obtruding  itself  in  laws  that  depart  so  radically  from  the 
old  notions  that  it  is  surprising  legislators,  and  keen  ob- 
servers do  not  see  that  the  entire  theory  of  employers'  lia- 
bility is  overturned. 

One  English  writer  on  the  old  theory  does  mournfully 
remark,  "By  the  Employers'  Liability  Act  1880,  such  ex- 
ceptions have  been  grafted  upon  the  common  law,  and  by 
the  Workmen's  Compensation  Act  1906,  principles  so  alien 
to  the  common  law  have  been  applied  to  most  employments 
that  it  is  impossible  now  to  present  any  view  of  this  branch 
of  the  law  as  a  logical  whole." 

What  a  confession!  That  the  law  has  lost  its  logical 
and  scientific  side  because  it  has  yielded  to  the  dictates  of 
humanity !    How  much  more  courageous  to  doff  one's  coat 


176  THE  NEW  COMPETITION 

and  set  about  ascertaining  why  the  law  has  changed,  and 
find  the  thread  of  logical  development  which  must  run 
through  all  changes. 

As  a  matter  of  fact  the  law  of  negligence  has  been 
changing  for  at  least  a  generation,  it  has  changed  greatly 
in  the  recollection  of  the  writer,  it  changed  from  year  to 
year  while  the  writer  was  actively  defending  personal  in- 
jury cases,  and  it  changed  so  fast  it  was  difficult  to  keep 
up  with  the  Courts. 

With  few  exceptions  the  changes  were  in  the  direction 
of  broader  liability  and  more  liberal  compensation. 

Courts  still  cling  to  the  old  theory  of  personal  respon- 
sibility, resorting  to  sophistry  to  make  it  appear  the  em- 
ployer was  negligent, — i.  e.,  morally  responsible — when  he 
may  have  had  no  more  to  do  with  the  accident  than  a  man 
in  Mars. 

Legislatures  pass  this  or  that  modification  of  the  com- 
mon law,  but  always  on  the  old  assumption  of  negligence 
direct  or  indirect. 

Neither  courts  nor  legislatures  realize  they  are  award- 
ing damages  upon  an  entirely  different  theory,  the  theory 
of  the  liability  of  the  industry,  but  things  have  gone  so  far 
now  that  the  true  theory  must  be  recognized  or  in  truth  it 
will  be  impossible  "to  treat  this  branch  of  the  law  as  a 
logical  whole."  ^ 


*  "The  trend  of  recent  legislation  and  attempted  legislation  through- 
out the  country,  until  the  introduction  of  so-called  compensation  laws, 
has  been  to  make  the  master  liable  for  all  accidents  that  arise  in  the 
business,  due  to  negligence  of  anyone  in  his  service;  to  change  the 
burden  of  proof  so  as  to  require  the  master,  where  defects  exist,  to 
show  that  there  was  no  negligence,  and  also  to  change  the  burden  of 
proof  so  as  to  require  the  master  to  show  that  the  injured  employee 
was  negligent;  to  remove  all  limits  whatsoever  that  exist  upon  his 
liability,  leaving  him  open  to  such  damages  as  the  juries  may  see  fit 
to  assess,  without  any  certainty  of  what  such  damages  may  cost  him 
at  any  moment ;  to  require  all  questions  of  negligence  to  be  left  to  the 
jury;  to  prohibit  any  contracting  out  of  such  liability;  and  to  increase 
the  body  of  law  aimed  directly  at  preventing  accident. 


HARMONY  177 


VI 

The  modern,  the  economic  theory  is  based  upon  the 
proposition  that, 

Each  industry  must  hear  all  its  costs,  direct  and  indi- 
rect, and  cover  those  costs  in  its  charges. 

From  a  purely  economic  point  of  view  the  compensa- 
tion of  an  employee  for  damage  sustained  in  the  course  of 
his  employment  is  not  a  question  of  legal  or  moral  liabil- 
ity, but  wholly  a  question  whether  all  damages  incidental 
to  the  operation  of  a  given  industry  shall  be  borne  by  the 
industry  and  covered  in  its  charges,  or  whether  only  a  cer- 
tain portion  shall  be  borne  by  the  industry  and  the  bal- 
ance by  the  community. 

The  damage  cannot  be  dissipated,  it  is  a  positive,  physi- 
cal fact;  if  a  man's  arm  is  gone,  it  is  gone,  and  no  amount 
of  learned  argument  as  to  who  is  to  blame  for  its  going 
will  restore  it. 

The  legal  debate  may  go  on,  as  it  often  does,  for  years 
from  court  to  court,  up  and  down,  and  back  again,  but  all 
the  time  the  arm  is  gone,  some  one  is  bearing  the  damage; 
the  industry,  or  the  individual  out  of  his  savings  and  fu- 

"Verdicts  have  been  growing  in  amount  until  some  have  become 
greatly  excessive,  though  others  are  inadequate. 

"There  is  no  doubt  that  under  the  development  of  the  negligence 
law  the  present  system  has  become  intolerable  and  entirely  fails  in  its 
purpose,  in  the  greater  number  of  cases,  of  compensating  the  injured 
employee,  or  administering  justice  in  practice  or  according  to  any 
reasonable  theory. 

"This  negligence  basis  for  compensating  industrial  injuries  has  not 
only  been  tried  and  proved  a  failure  in  the  United  States,  but  it  has 
proved  to  be  a  great  factor  in  widening  the  breach  between  employers 
and  employees,  creating  hardship  on  both  sides  with  resulting  bitterness. 
This  hardship  has  been  spread  throughout  the  wide  area  involved  in 
industrial  and  constructive  undertakings  and  has  consequently  affected 
an  enormous  proportion  of  our  citizens." 

From  Report  of  Employers'  Liability  and  Workmen's  Compensa- 
tion Commission,  62nd  Cong.,  2nd  Session;  Document  No.  338. 


178  THE  NEW  COMPETITION 

ture  earnings,  or  the  community  in  charitably  supporting 
the  individual  if  he  is  rendered  helpless. 

Heretofore,  where  the  employee  could  not  show  that 
the  employer  was  personally  to  blame,  directly  or  indirectly, 
the  community  has  either  meekly  accepted  the  burden  or 
brutally  compelled  the  employee  to  bear  it  if  he  had  the 
means  saved  up,  even  to  the  extent  of  degrading  him  and 
his  family  to  the  level  of  beggars  and  paupers. 


VII 


More  enlightened  views  are  finding  acceptance.  The 
public  is  beginning  to  see  that  in  the  last  analysis  the  com- 
munity as  a  whole  must  bear  all  its  burdens,  that  while  one 
man  may  escape  responsibility  he  can  do  so  only  at  the  ex- 
pense of  some  one  else;  that  if  in  a  given  industry  so  many 
men  are  killed  and  injured  each  year  the  loss  is  the  loss  of 
the  community  no  matter  how  the  question  of  responsibility 
is  adjusted.  And  in  addition  the  community  now  spends  an 
enormous  amount  of  time  and  money  in  supporting  courts 
to  settle  questions  of  responsibility  between  individuals — 
the  settling  of  which  does  not  lessen  by  a  penny  the  dam- 
ages sustained. 

During  the  year  ending  June  30,  191 1,  there  were 
3,163  railroad  employees  killed  and  46,802  injured.  Con- 
ditions will  improve  but  there  always  will  be  a  certain  num- 
ber killed  and  injured — these  are  factors  in  the  cost  of  rail- 
roading, just  as  much  so  as  injuries  to  road-bed  and  equip- 
ment. 

It  would  be  interesting  to  know  how  many  of  the  deaths 
and  injuries  resulted  in  claims  and  law-suits — it  is  safe 
to  say  a  great  majority. 

But  whether  the  men  injured  were  at  fault  or  the  com- 
panies does  not  make  the  slightest  difference  from  an  eco- 


HARMONY  179 

nomic  point  of  view,  the  cost  to  the  community  is  the  same; 
the  question  is,  who  shall  pay  the  cost? 

And  to  that  there  can  be  but  one  answer — the  industry. 

The  matter  is  one  for  actuaries  rather  than  lawyers, 
for  scientific  solution  rather  than  a  law-suit.^ 


VIII 


We  in  the  United  States  have  made  money  so  fast  and 
human  life  has  been  so  plentiful  and  so  cheap  that  we  are 
far  behind  nearly  every  civilized  country  in  dealing  with 
the  great  problems  of  workmen*s  compensation  and  age 
pensions. 

Compensation  laws  have  been  passed  in  the  following 
countries : 

Austria  Transvaal 

Belgium  New  Zealand 

Denmark  New  South  Wales 

Finland  Queensland 

France  South  Australia 

Germany  Western  Australia 

Greece  Italy 

Hungary  Luxemburg 

Great  Britain  Netherlands 

*  "According  to  the  mortality  statistics  for  1908,  published  by  the 
U.  S.  Census  Bureau,  there  were  19,970  fatal  accidents  to  wage 
earners  in  that  year.  Mr.  F.  L.  Hoffman  estimates  the  number  of 
non-fatal  accidents  during  the  same  year  at  2,000,000.  Mr.  Seager  esti- 
mates that  there  are  not  less  than  30,000  fatal  accidents  among  wage 
earners  e^/ery  year  in  this  country;  as  a  result  of  which  20,000  families 
are  reduced  to  destitution ;  and  that,  in  consequence  of  these  accidents, 
some  15,000  widows  and  45,000  children  are  forced  to  accustom  them- 
selves to  a  hand-to-mouth  existence,  which  necessarily  crowds  employ- 
ments where  competition  is  keenest  and  wages  are  lowest." — "Old  Age 
Dependency  in  the  United  States,"  Lee  W.  Squier,  p.  26,  citing  "Social 
Insurance,"  by  Henry  R.  Seager,  and  Bulletin  of  U.  S.  Bureau  of  Labor 
No.  78,  September,  1908. 


i8o  THE  NEW  COMPETITION 

Alberta  Norway 

British  Columbia  Russia 

Quebec  Spain 

Cape  of  Good  Hope  Sweden 

and  in  a  few  of  the  States  in  the  United  States.^ 

The  failure  of  the  personal  responsibility  theory  is  con- 
ceded in  the  following  brief  summary  of  conditions  that 
led  to  the  English  Employer's  Liability  Act  of  1880  and 
the  Workingmen's  Compensation  Acts  of  1897  and  1906: 

"So  long  as  an  industry  was  conducted  on  a  small  scale, 
and  the  master  worked  with  his  men,  or  was  himself  the 
manager,  its  (the  common  law  regarding  negligence)  hard- 
ship was  perhaps  little  felt;  his  personal  negligence  could 
in  many  cases  be  established.  But  with  the  development 
of  the  factory  system,  and  the  ever-growing  expansion  of 
the  scale  on  which  all  industries  were  conducted,  it  became 
increasingly  difficult  to  bring  home  individual  responsibil- 
ity to  the  employer.  As  industry  passed  largely  into  the 
control  of  corporations,  this  difficulty  became  almost  an 
impossibility.  The  employer  was  not  liable  to  a  servant 
for  the  negligence  of  a  fellow-servant,  and  therefore,  in 
most  cases  of  injury  was  not  liable  at  all.  It  is  not  surpris- 
ing that  the  condition  of  things  thus  brought  about,  fol- 
lowed by  the  growth  of  modern  industry  and  partly  by  the 
decisions  of  the  courts,  caused  grave  dissatisfaction.  The 
justice  of  the  doctrine  of  common  employment  was  vigor- 
ously called  in  question.  In  the  result  the  Employer's  Lia- 
bility Act  of  1880  was  passed." 

This  Act  did  not  meet  the  situation.  "In  1897  Parlia- 
ment took  the  first  step  in  what  has  been  a  complete  revolu- 
tion in  the  law  of  Employer's  Liability.     Up  to  that  year, 

*A  valuable  examination  of  the  European  compensation  systems 
appears  in  the  twenty- fourth  Annual  Report  of  the  (Federal)  Commis- 
sioner of  Labor,  and  of  various  State  Gjmpensation  Acts  in  Bulletin 
93,  etc,  of  the  Bureau  of  Labor. 


HARMONY  i8i 

as  has  been  seen,  the  foundation  of  a  master's  liability  was 
negligence,  either  of  the  master  himself,  or,  in  certain  cases, 
of  his  servants.  But  by  the  Workmen's  Compensation 
Act,  1897,  a  nezv  principle  zvas  introduced  whereby  certain 
servants  in  certain  employments  were  given  a  right  to  com- 
pensation for  injuries,  wholly  irrespective  of  any  consider ch 
tion  of  negligence  or  contributory  negligence.  As  regards 
such  servants  in  such  employments  the  master  was  in  effect 
made  an  insurer  against  accidental  injuries."^ 


IX 


As  the  doctrine  of  personal  responsibility  disappears  the 
economic  theory  of  insurance  naturally  makes  its  appear- 
ance. 

Germany  has  a  compulsory  system  of  state  insurance 
which  protects  practically  all  classes  of  workmen  except  do- 
mestic servants  and  artisans  working  on  their  own  account. 
"The  provision  of  compensation  for  accidents  falls  entirely 
upon  employers,  and  in  order  to  lighten  the  burden  thus 
falling  upon  them,  and  at  the  same  time  to  guard  against 
the  possible  insolvency  of  an  individual  employer,  associa- 
tions or  self-administering  bodies  of  employers  have  been 
formed — usually  all  the  employers  of  each  particular 
branch  of  industry  in  a  district.  These  associations  fix  the 
amount  of  compensation  after  each  accident,  and  at  the  end 
of  the  year  assess  the  amount  upon  the  individual  em- 
ployers. There  is  an  appeal  from  the  association  to  an 
arbitration  court,  and  in  particularly  complicated  cases 
there  may  be  a  further  appeal  to  the  imperial  insurance 
department."  ^ 

*From  Encyclopedia  Britannica,  Eleventh  Edit,  357.  This  same 
article  also  contains  brief  summaries  of  the  laws  of  some  of  the  differ- 
ent countries. 

'  "A  German  laborer  may  begin  life  attended  by  a  physician   or 


1 82  THE  NEW  COMPETITION 

The  voluntary  cooperation  of  all  the  employers  is  of  in- 
terest, and  shows  the  necessity  of  the  formation  of  asso- 
ciations to  work  out  these  large  economic  problems. 

In  Austria  there  is  compulsory  insurance  administered 
by  special  insurance  institutions,  each  embracing  particu- 
lar classes  of  industries  or  workers.  "The  institutions  are 
managed  by  committees,  one-third  of  the  members  of  each 

nurse  paid  by  the  State;  he  is  christened  by  a  State  clergyman;  is 
taught  the  rudiments  of  learning  and  his  handicraft  by  the  State.  He 
begins  his  apprenticeship  under  the  watchful  eye  of  a  State  inspector 
who  sees  that  the  safeguards  to  health  and  limb  are  faithfully  ob- 
served. He  is  drafted  by  the  State  into  the  army,  devoting  two  of  his 
best  years  to  the  drill  sergeant.  He  returns  to  work  from  the  rigor  of 
this  discipline ;  the  State  gives  him  license  to  marry,  registers  his  place 
of  residence,  and  follows  him  from  place  to  place  wherever  he  moves. 
If  he  falls  ill,  his  suffering  is  assuaged  by  the  knowledge  that  his  wife 
and  children  are  cared  for,  and  that  his  expenses  will  be  paid  during 
illness,  and  he  spends  his  convalescence  in  a  sumptuous  State  hospital. 
If  he  falls  victim  to  an  accident,  the  ample  insurance,  even  if  he  be 
permanently  injured,  is  a  balm  to  his  suffering.  If  he  unfortunately 
becomes  that  most  pitiable  of  all  creatures,  a  man  out  of  work,  city 
and  State  unite  to  find  or  make  work  for  him.  If  he  wanders  from 
town  to  town  in  search  of  work,  the  cities  through  which  he  passes 
offer  him  free  hospitality.  If  he  wishes  to  move  to  another  part  of  his 
town,  the  municipal  bureau  will  be  glad  to  help  him  find  a  house,  or 
even  lend  him  money  to  get  one  of  his  own. 

"If  he  is  in  dispute  with  his  employer,  the  Government  furnishes 
a  court  of  arbitration.  If  he  is  sued  by  his  master  or  wishes  to  sue 
him,  the  State  has  provided  a  special  industrial  court.  If  he  is  in 
trouble  the  city  places  a  lawyer  at  his  disposal. 

"And  if  by  rare  chance,  through  the  grace  of  the  State's  strict  sani- 
tary regulations  and  by  careful  living,  he  reaches  the  age  of  seventy, 
he  will  find  the  closing  day  of  his  life  eased  by  a  pension,  very  small, 
to  be  sure,  but  yet  enough  to  make  him  more  welcome  to  the  relatives 
or  friends  who  are  charged  with  ministering  to  his  wants. 

"Two  hundred  thousand  dollars  a  day  is  the  price  that  Germany 
pays  for  this  system  of  industrial  pensions  alone.  More  than  16,000,000 
workmen  are  insured  under  the  accident,  old  age,  and  sickness  acts. 
This  does  not  include  the  vast  horde  of  officials  who  are  pensioned  in 
army  and  navy,  preachers,  teachers,  judges,  the  national  and  local  civil 
lists — policemen,  firemen,  janitors,  and  all  the  rest.  There  is  only  one 
considerable  class  of  workers  left  out — the  private  salaried  employees — 
such  as  clerks,  stenographers,  etc.  There  is  a  law  now  in  the  Reichstag 
extending  the  pension  acts  to  this  class.  Then  only  a  minority  of  the 
65,000,000  inhabitants  will  be  without  the  benefit  of  some  public  stipend. 
Germany  is  the  pensioner's  pSLTzdise.**— World's  Work,  June,  1912, 
p.  148. 


I 


HARMONY  183 

committee  being  chosen  by  the  Minister  of  the  Interior, 
one-third  by  the  employers  and  one-third  by  the  workers." 

France  and  Italy  have  had  systems  of  compulsory  state 
insurance  since  1898.  Norway  and  Holland  also  require 
insurance. 

In  Denmark,  Spain,  Sweden,  Russia  and  Belgium  em- 
ployers may  relieve  themselves  from  some  or  all  of  the 
provisions  of  the  liability  acts  by  insuring  their  workmen. 

The  old  theory  of  moral  responsibility  with  its  per- 
sonal liability  doctrine  has  influenced  the  passing  of  much 
of  this  legislation  and  influenced  it  detrimentally;  the  true 
theory  of  economic  liability  is  not  explicitly  recognized,  yet 
every  law  providing  for  compulsory  insurance,  or  compen- 
sation irrespective  of  question  of  negligence  of  employer 
must  rest  on  that  theory  and  that  theory  alone. 

Such  are  some  of  the  wonderfully  interesting  problems 
it  is  the  privilege  and  duty  of  associations  to  consider.* 


Much  of  what  has  been  said  applies  to  the  establishing 
of  disability  and  old  age  pensions. 

Some  industries  consume  life  faster  than  others;  the 
cost  of  human  beings  is  as  legitimate  a  charge  as  that  of 
coal. 

The  charge  for  depreciation  is  a  constant  and  import- 
ant element  of  cost  in  every  industry.  In  addition  to  depre- 
ciation every  mining  company  charges  off  each  year  a  cer- 
tain amount  based  upon  the  estimated  exhaustion  of  its 
mines. 

*The  subject  of  compensation  for  injuries  is  now  before  Congress 
in  concrete  form  in  the  Sutherland  bill.  At  least  one  open-price  asso- 
ciation has  taken  an  interest  in  the  framing  of  that  act,  for  while  it 
applies  only  to  inter-state  carriers,  it  is  recognized  that  the  law  will 
probably  be  used  as  the  model  for  many  state  laws — laws  certain  to 
be  passed  within  the  next  few  years. 


1 84  THE  NEW  COMPETITION 

These  are  the  A,  B,  C,  of  cost  accounting.  Why  is  it 
not  of  equal  importance  to  the  community  that  every  indus- 
try should  set  aside  each  year  the  proper  amount  to  take 
care  of  aged  employees? 

If  the  industry  itself  is  not  large  enough  or  long  lived 
enough  to  do  this  it  should  be  compelled  to  participate  in 
some  insurance  plan  operated  under  the  sanction  of  the 
government. 


XI 


As  regards  economic  thought  and  progress  this  country 
occupies  a  position  of  isolation  from  the  rest  of  the  world, 
the  isolation  of  arrogant  prosperity. 

We  are  so  rich  me  don't  care—thdX  is  the  trouble. 
"Why  should  we  bother  about  the  aged,  the  feeble,  the  help- 
less, when  we  have  more  men  than  we  need,  more  money 
than  we  want,  more  resources  than  we  know  what  to  do 
with?    If  the  old  man  isn't  rich  it's  his  own  fault." 

That  is  our  attitude — the  callous  indifference  of  rapidly 
acquired  wealth. 

But  when  we  consider  the  long  and  careful  thought 
other  and  poorer  countries  have  given  these  great  economic 
problems,  the  sacrifices  they  have  made  in  contributions  and 
taxes  to  provide  funds  for  the  support  of  the  maimed  and 
helpless,  we  cannot  but  feel  humiliated.  It  is  humiliating 
to  realize  we  are  nearly  a  century  behind  Russia.^ 

**T[t  seems  remarkable  that  the  United  States,  which  has  led  the 
world  in  compulsory  education  at  public  expense,  should  be  far  be- 
hind other  countries  in  making  provision  in  the  law  for  the  support  of 
worn-out  and  aged  teachers.  Russia  established  such  laws  in  1819; 
Saxony,  in  1840;  England,  in  1848;  France,  in  1858.  Other  countries 
in  which  laws  prevail  are  Ireland,  Spain,  Servia,  Italy,  Austria,  Bel- 
gium, Sweden,  Norway,  Finland,  Australia,  Japan,  Mexico,  Chile.  Ar- 
gentine Republic,  Ontario,  Quebec,  and  nearly  all  the  cantons  of  Swit- 
zerland."—"Old  Age  Dependency  in  the  United  States,"  Lee  W.  Squier, 
p.  139. 


HARMONY  185 

We  have  paid  out  over  four  billions  of  dollars — $4,230,- 
380,730 — in  pensions  to  soldiers,  sailors,  marines,  and  their 
widows  and  children,^  but  this  prodigality  has  been  inspired 
by  political  and  patriotic  notions  rather  than  sound  and  ra- 
tional economic  theory. 

An  old  man  is  an  old  man,  with  a  stomach  to  feed  and 
a  body  to  clothe,  whether  an  ex-soldier  or  an  ex-cabman; 
a  widow  is  a  woman,  whether  the  widow  of  a  man  who  was 
shot  in  battle  or  one  killed  in  the  service  of  a  railroad. 

The  final  justification  for  old  age  and  disability  pen- 
sions lies  in  the  needs  of  the  beneficiaries,  the  character  of 
the  occupation  is  of  incidental  importance. 

Cities  have  done  something,  but  not  very  much,  toward 
working  out  pension  schemes  applicable  to  limited  classes 
of  municipal  employees,  mainly  police  and  fire  department — 
always  first  and  foremost  classes  that  have  votes. 

A  few  corporations  have  taken  up  the  matter  in  a  more 
or  less  tentative  way,  but  the  following  summary  made  as 
the  result  of  most  careful  inquiries,  shows  how  little  has 
been  accomplished: 

"It  is  to  be  regretted  that  only  about  a  score  of  the 
thousands  of  manufacturing  enterprises  in  the  United 
States  can  be  included  in  this  summary  of  those  who  have 
crystallized  thought  for  the  relief  of  worn-out  workmen. 

"In  nearly  every  instance  letters  from  the  managers 
who  have  furnished  information  concerning  pension 
schemes  indicate  that  the  efforts  at  relief  have  been  dictated 
as  largely  by  economic  considerations  as  by  altruistic. 
Leaving  worn-out,  incapacitated  men  on  the  pay  roll  is  an 
economic  waste.  To  turn  such  adrift  is  not  humane  and 
exercises  a  depressing  influence  upon  workers  still  in  the 
prime  of  life. 

"Many  corporations  report  that  individual  provisions 
have  been  made  for  worn-out,  or  incapacitated  workmen — 

*  Report  of  Commissioner  of  Pensions,  191 1,  page  11. 


1 86  THE  NEW  COMPETITION 

each  case  being  dealt  with  on  its  merits.  This  plan,  how- 
ever, is  recognized  by  advanced  thinkers  in  the  employers' 
domain  as  open  to  many  serious  objections — the  principal 
of  which  is  the  impression  among  employees  that  favorit- 
ism and  partiality  may  determine  the  fact  and  amount  of 
pension,  which  impression  seriously  affects  the  content- 
ment, loyalty,  and  industry  of  workmen  growing  old  in 
the  corporation's  service. 

"The  few  systems  of  pensions  that  have  been  devised 
by  industrial  corporations  are  almost  without  exception  in- 
spired by  economic  motives.  These  systems  are  usually  ac- 
cepted by  the  employees  with  favor,  the  pensions  being 
recognized  as  in  effect  deferred  wage  dividends  available 
in  the  event  of  incapacity  or  old  age.  Inquiry  among  em- 
ployers and  employees  in  corporations  in  which  the  pen- 
sion system  is  recognized  and  operating  sustains  the  a  priori 
argument  that  the  pension  system  has  already  done  much 
towards  bringing  employers  and  employees  together  in  the 
recognition  of  the  principle  that  the  interests  of  both  classes 
are  identical,  thereby  reducing  the  likelihood  of  discontent- 
ment, strife  and  strike,  and  cultivating  harmony,  loyalty 
and  efficiency."^ 

There  can  be  no  question  that  the  adoption  of  compen- 
sation and  pension  plans  will  go  far  toward  bringing  about 
the  integration  of  labor  urged  in  a  subsequent  chapter.* 


XII 


In  this  connection  it  should  be  noted  that  the  payment 
of  old  age  pensions  by  the  state  is  not  a  logical  development 
of  the  modern  theory  that  each  industry  should  take  care 
of  its  costs. 

*"01d  Age  Dependency  in  the  United  States,"  Squicr,  pp.  105-6. 
•See  Chapter  XVIII. 


HARMONY  187 

The  government  should  compensate  its  own  employees 
for  injuries  and  pension  them  when  old  and  infirm,  but  why 
should  it  compensate  and  pension  my  workmen,  or  the  em- 
ployees of  the  Standard  Oil  Company,  or  the  Pennsylvania 
Railroad  ? 

Everybody  sees  that  compensation  for  injuries  should 
be  paid  by  the  industry  that  gets  the  benefit  of  the  serv- 
ices and  occasions  the  injury;  is  it  not  equally  plain  that 
the  industry  that  consumes  a  man's  youth  and  vigor  should 
take  care  of  him  in  his  old  age  ? 

The  proposition  is  too  plain  to  call  for  discussion  yet 
many  public  men  support  the  suggestion  that  the  govern- 
ment should  pay  old  age  pensions. 

It  is  a  purely  socialistic  proposition,  and  weakly  begs 
the  question  of  real  responsibility  and  scientific  adjustment. 

It  is  not  easy  to  work  out  a  scheme  whereby  industries 
that  may  go  out  of  existence  or  become  bankrupt  shall  es- 
tablish the  proper  fund  for  the  care  of  their  aged  employees, 
and  it  is  easy  to  call  upon  the  government  to  do  what  the 
industries  should  do,  but  because  the  problem  is  a  difficult 
one,  the  solution  is  all  the  more  worthy  the  minds  of  able 
and  disinterested  men. 

The  radical  political  leader  sees  an  opportunity  to  curry 
favor  by  adopting  the  socialistic  plan  since  it  relieves  em- 
ployers of  responsibility  and  puts  employees  on  the  pay-roll 
of  the  state,  but  progress  in  that  direction  is  attended  with 
grave  consequences;  the  man  who  takes  the  first  step  can- 
not consistently  refuse  the  adoption  of  the  entire  socialistic 
program. 

XIII 

No  man  should  be  permitted  to  employ  another  without 
providing  for  all  the  contingencies  of  the  employment,  nor 
should  labor  be  permitted  to  bargain  away  insurance  fea- 


1 88  THE  NEW  COMPETITION 

tures  for  more  money  in  hand.  The  intervention  of  the 
government  is  necessary  for  the  establishment  and  protec- 
tion of  the  necessary  fund,  but  the  details  can  best  be 
worked  out  by  associations  of  employers  and  employees. 

While  the  individual  employer  in  a  given  locality  may 
virith  reason  object  to  this  or  that  charge  against  his  busi- 
ness because  it  places  him  at  a  disadvantage  in  competition 
with  others  who  do  not  include  the  item  in  their  costs,  all 
objections  vanish  when  all  in  the  industry  are  obliged  to 
make  the  same  allowance,  and  far-sighted  employers  should 
welcome  any  plan  or  law  that  would  reduce  an  uncertain 
element  in  their  business  to  a  certain. 

Industrial  progress  must  mean  the  gradual  elimination 
of  the  speculative,  the  gambling  element  in  business,  the 
gradual  substitution  of  carefully  and  scientifically  calculated 
factors  in  costs  for  prevailing  hazards. 

The  parties  interested  must  work  out  their  plans;  it  is 
folly  to  leave  this  to  committees  of  Congress  and  legisla- 
tures, to  men  whose  first  interest  is  political  rather  than 
economic. 

And  only  associations  covering  substantially  entire  in- 
dustries can  do  the  work  properly. 

The  steel  industry  should  not  wait  for  the  twelve  hour 
day  to  be  condemned  by  some  drastic  law,  the  men  who 
know  the  industry — employers  and  employees — should  get 
together  and  devise  their  own  plan  for  meeting  the  situa- 
tion and  then  appeal  to  Congress  only  in  the  contingency 
that  some  company  or  companies  will  not  voluntarily  carry 
out  the  reform. 

The  question  is  a  practical  one  demanding  the  attention 
of  practical  men,  but  most  of  the  agitation  at  the  moment 
is  by  politicians,  and  the  entire  industry  is  on  the  defensive, 
it  is  being  placed  in  the  false  attitude  of  opposing  much- 
needed  reforms. 

As  it  is  now,  representatives  of  employers  appear  be- 


HARMONY  189 

fore  congressional  and  legislative  committees  and  fight  rep- 
resentatives of  their  employees,  they  are  at  sv^ords'  points, 
they  agree  upon  nothing,  they  eye  each  other  with  distrust, 
each  is  ready  to  oppose  everything  the  other  suggests. 

It  should  be  the  aim  of  the  open-price  association  to 
better  these  conditions,  to  make  it  possible  for  committees 
of  employers  and  employees  to  work  together  with  one  end 
in  view,  the  helping  of  both. 


CHAPTER  XII 
RELATIONS   WITH   CUSTOMERS 


There  is  just  as  much  "brutal"  buying  as  there  is  "bru- 
tal" selling — perhaps  a  little  more,  since  three  times  out  of 
five  it  is  the  buyer  who  has  the  seller  at  his  mercy  rather 
than  the  reverse. 

One  has  but  to  note  the  relative  attitude  of  shop-keeper 
and  customer;  the  obsequiousness  of  the  tradesman  is  pro- 
verbial, he  solicits,  begs,  implores  custom;  he  dares  not  re- 
sent a  harsh  word  lest  he  lose  favor,  his  salesmen  are 
trained  to  keep  silent  under  insult.  On  a  bargain  day  watch 
the  angry,  struggling  mob  on  one  side  of  the  counter  and 
the  pale,  tired  salesgirls  on  the  other — is  the  mob  human? 

It  matters  not  how  small  or  how  large  the  transaction, 
the  buyer  knows  he  has  the  advantage,  he  does  not  hesitate 
to  say  "money  talks." 

Now  and  then  conditions  favor  the  seller  and  he  can 
be  as  independent  as  he  pleases,  but  these  golden  periods  are 
of  short  duration;  if  buying  does  not  fall  off,  the  inrush 
of  new  vendors,  attracted  by  favorable  conditions,  soon  re- 
stores the  old  state  of  dependency. 

In  a  given  locality  there  may  be  so  much  building  that 
all  the  carpenters,  masons,  brick-layers,  painters,  etc.,  are 
employed  and  dictate  terms,  but  most  of  the  time  the  man 
who  wishes  to  build  can  make  contracts  that  result  in  losses 
to  those  who  Wdertake  the  work. 

190 


RELATIONS  WITH  CUSTOMERS        191 


II 


When  it  comes  to  sheer  brutality  is  there  any  worse  than 
that  of  the  man  who  "beats"  a  contractor  down  until  he 
knows  the  poor  devil  cannot  get  out  even  and  then  holds 
him  to  a  losing  contract  ? 

That  is  common  custom  under  the  old  competition. 

One  day  a  young  man  who  had  made  millions — and 
boasted  of  it — pointed  to  the  tiled  roof  of  his  new  house 
and  said,  "The  fellows  from  San  Francisco  who  did  that 
lost  three  thousand  dollars  on  the  job." 

"Then  your  house  is  not  paid  for  ?" 

"Every  dollar." 

"Except  three  thousand  on  the  roof." 

"I  paid  them  all  their  contract  called  for.** 

"But  not  all  their  work  called  for." 

"Hah !    I  don't  see  it  in  that  light." 

"And  never  will — ^that's  the  sad  part  of  it." 


Ill 


Brutal  buying  is  manifest  in  so  many  forms.  Railroads 
and  large  corporations  insist  that  work  shall  be  subject  to 
the  arbitrary  inspection  of  and  satisfactory  to  their  own 
engineers;  while  most  engineers  are  both  able  and  fair, 
their  interest  is  that  of  the  companies,  and  not  a  few  feel 
they  can  best  demonstrate  the  value  of  their  services  by 
getting  as  much  as  they  can  out  of  contractors  who  are 
helpless. 

This  is  a  one-sided  arrangement  imposed  upon  the  seller 
by  the  buyer.  It  is  a  manifestly  unfair  arrangement.  And 
it  is  an  arrangement  that  the  buyer  in  the  end  pays  for 
in  one  way  or  another.    Where  engineers  have  the  reputa- 


192  THE  NEW  COMPETITION 

tion  of  being  arbitrary  and  unreasonable,  bids  and  prices 
are  made  accordingly. 

The  following  illustrates  the  argument: 

'The  Company  reserves  the  right  to  suspend  operations 
on  the  work  under  this  contract  or  any  particular  part  or 
parts  by  giving  the  Contractor  twenty  (20)  days'  notice, 
and  in  the  event  of  such  right  being  exercised,  the  engineer 
shall  grant  to  the  Contractor  an  extension  of  time  equiva- 
lent to  the  time  of  suspension  of  work.  It  is  further  under- 
stood and  agreed  that  on  such  suspension  the  Contractor 
may  have  the  option  to  close  and  settle  up  for  the  work 
done  according  to  the  estimate  of  said  engineer;  such  sus- 
pension or  settlement  of  the  work,  however,  shall  not 
entitle  the  Contractor  to  any  claim  for  damages;  or  if  the 
Company  shall  postpone  or  suspend  the  work  under  this 
contract  indefinitely  or  altogether,  which  it  reserves  the 
right  to  do,  then  in  that  case  the  engineer  shall  pre- 
pare a  final  estimate  of  the  value  of  the  part  of  the  work 
done,  such  estimate  to  include  any  materials  purchased  and 
delivered  to  the  Contractor,  or  especially  designed  and 
ordered  for  the  work  under  this  contract  the  same  as  if 
the  work  had  been  completed,  and  this  contract  shall  there- 
upon be  terminated.  All  materials  paid  for  and  included 
in  such  final  estimate  that  are  not  of  the  property  of  the 
Company  shall  be  delivered  to  the  Company  before  such 
estimate  is  paid.  The  canceling  of  this  contract  shall  not 
entitle  the  Contractor  to  any  claim  for  damages  or  for  an- 
ticipated profits  on  the  unperformed  portion  of  the  work; 
but  the  Chief  Engineer  may,  at  his  discretion,  determine 
upon  a  fair  and  equitable  compensation  to  be  paid,  in  case 
such   canceling  inflicts   an  undue  hardship  on  the   Con- 


IV 


In  the  following  clause  the  railroad  seeks  to  make  the 
contractor  responsible  for  "the  negligence  of  the  com- 
pany'' : 


RELATIONS  WITH  CUSTOMERS        193 

"The  Contractor  agrees  to  indemnify  and  save  harm- 
less the  Company  for  and  from  all  claims,  demands,  pay- 
ments, suits,  actions,  recoveries  and  judgments  of  every 
name  and  description,  brought  or  recovered  against  it,  for, 
or  on  account  of,  any  injuries  or  damages  received  or  sus- 
tained by  any  party  or  parties,  by  reason  of  any  act  of  the 
said  Contractor,  or  of  any  sub-contractor  hereunder,  or  of 
any  agent  or  servant  of  either  said  Contractor  or  Sub- 
Contractor,  in  the  construction  of  said  work,  or  by  or  in 
consequence  of  any  negligence  or  carelessness  in  guarding 
the  same;  or  on  account  of  the  death  of  or  injury  to  the 
person,  or  damage  to  the  property  of  the  Contractor,  or  of 
any  Sub-Contractor  hereunder,  or  any  of  the  agents,  ser- 
vants or  employees  of  the  Contractor,  or  of  any  Sub- 
Contractor  hereunder,  who  shall  be  engaged  in  or  about 
the  work  to  be  performed  under  this  contract,  or  any  sub- 
contract hereunder,  zvhether  such  death,  injury  or  damage 
shall  be  caused  by  the  negligence  of  the  Company,  its 
agents,  servants  or  otherzvise,  and  so  much  of  the  moneys 
due  or  to  become  due  to  said  Contractor,  under  this  agree- 
ment, as  shall  or  may  be  retained  by  the  Company  until 
every  and  all  of  such  claims,  demands,  suits,  actions,  re- 
coveries and  judgments  shall  have  been  settled  and  dis- 
charged, and  evidence  to  that  effect  furnished  to  the  satis- 
faction of  said  Chief  Engineer." 

In  this  clause  the  Company  throws  on  the  contractor 
all  loss  due  to  delays  caused  by  the  Company  : 

"It  is  expressly  understood  and  agreed  that  the  Con- 
tractor shall  not  be  entitled  to  claim  or  receive  from  the 
Company  any  sum  whatever  in  excess  of  the  contract  price 
for  the  work  provided  for  herein,  by  reason  or  on  account 
of  any  delay  caused  in  such  work  by  the  Company." 

In  this  clause  damage  caused  by  the  mistakes  of  the  rail- 
road's engineers  is  cast  upon  the  contractor : 

"And  if  the  contractor  in  the  course  of  the  work  shall 
find  that  the  points,  grades  and  levels  which  are  shown 
upon  the  plans  are  not  conformable  to  the  physical  condi- 
tions of  the  locality  of  the  proposed  work  or  structure,  it 


194  THE  NEW  COMPETITION 

shall  be  the  duty  of  the  Contractor  to  immediately  inform 
the  Chief  Engineer  of  the  Company  of  the  discrepancy  be- 
tween the  points,  grades  and  levels  shown  on  such  plans 
and  the  actual  physical  conditions  of  the  locality  of  the 
proposed  work,  and  no  claim  shall  be  made  by  the  Con- 
tractor against  the  Company  for  compensation  or  damages 
by  reason  of  the  failure  of  the  Company  to  represent  upon 
said  plans  the  points,  grades  and  levels  conformable  to  the 
actual  physical  conditions  of  the  locality  of  the  proposed 
work." 

These  one-sided  conditions  must  be  done  away  with 
and  they  can  be  remedied  only  by  concerted  action  on  the 
part  of  sellers.  No  one  contractor  can  help  matters  by 
saying  he  will  not  sign  contracts  that  are  drawn  entirely 
in  the  interest  of  the  buyer ;  that  would  simply  result  in  de- 
priving him  of  work. 

Nor  is  it  a  situation  that  can  be  met  in  this  country  by 
legislation,  since  it  is  the  constitutional  right  of  the  adult 
citizen  to  sign  such  contracts  if  he  wishes  to,  and  once 
signed  the  courts  will  enforce  them,  unless  there  is  fraud. 

Contractors  as  a  unit  must  say  they  will  not  accept  con- 
tracts that  contain  unfair  provisions. 


Another  illustration  of  "brutal"  buying  is  the  calling 
for  bids  on  work  to  be  taken  practically  when  the  pur- 
chaser pleases,  often  not  at  all. 

The  writer  has  before  him  copies  of  two  requests  from 
railroads  for  bids  on  certain  steel  work. 

One  road  asks  for  proposals  for  ^'approximately  3,000 
tons,  more  or  less,"  it  will  agree  to  take  not  less  than  2,500 
tons  during  the  year,  but  insists  the  contract  shall  cover  a 
possible  maximum  of  6,000  tons. 

The  other  road  asked  for  bids  on  its  "probable  require- 


RELATIONS  WITH  CUSTOMERS        195 

ments  from  1912  to  1914  inclusive" — three  years.  It  did 
not  commit  itself  to  the  purchase  of  any  minimum  amount. 
In  other  words,  it  asked  for  blank  contracts  that  would  pro- 
tect it  if  steel  should  go  up,  and  let  it  out  if  steel  should 
go  down. 

The  fact  that  roads  do  not  often  take  advantage  of 
these  one-sided  agreements  is  no  argument  in  their  favor — 
on  the  contrary,  it  is  a  strong  argument  against  making 
agreements  that  are  harmful  when  not  superfluous. 

Railroads  are  no  worse  offenders  than  small  companies 
and  individuals.  It  is  human  nature  to  demand  of  the 
seller  all  he  has  agreed  to  deliver  if  prices  go  up,  and  to 
wriggle  and  twist  to  get  out  of  taking  what  one  has  agreed 
to  take  if  prices  go  down.  Men  in  all  walks  of  life  are 
quick  to  seize  a  profit,  and  equally  keen  to  evade  a  loss. 

The  trouble  is  with  the  system — it  is  altogether  one- 
sided, it  does  not  give  the  seller  a  fair  chance. 

Purchasing  agents  cannot  be  blamed  for  drawing  con- 
tracts in  favor  of  their  roads  when  sellers  are  only  too 
eap-er  to  sign  them. 


VI 


In  the  erection  of  steel  buildings  the  owner  usually  asks 
for  bids  on  the  entire  work  from  general  contractors.  In 
order  to  make  up  his  bid  it  is  necessary  for  the  general 
contractor  to  get  bids  upon  the  different  parts  of  the  work, 
cement  work,  stone  work,  steel  work,  tile  work,  wood 
work,  etc.,  etc.  Some  parts  of  the  work  the  general  con- 
tractor may  do  with  his  own  men,  but  a  great  deal  of  it  he 
must  sub-let  to  others.  As  a  rule  the  entire  steel  work  is 
let  to  some  steel  fabricating  company. 

The  general  contractor  asks  a  number  of  fabricating 
companies  to  bid  on  the  steel.  When  the  bids  are  in  he 
uses  the  lowest  in  preparing  his  own  general  bid  to  the 


196  THE  NEW  COMPETITION 

owner.  If  he  gets  the  contract  does  he,  in  good  faith,  let 
the  steel  work  to  the  steel  fabricating  company  whose  bid 
he  has  used?  Not  at  all.  On  the  contrary  he  takes  that 
bid  and  uses  it  as  a  club  to  get  a  lower  bid  from  some  other 
company.    If  the  first  bidder  says  to  him: 

*1  was  the  lowest  bidder,  you  used  my  bid  in  making 
up  your  own." 

"Yes,  but  that  was  before  I  got  the  contract." 
"Don't  you  think  we  ought  to  have  the  work?'* 
"Not  if  I  can  get  some  one  else  to  do  it  lower." 
And  in  dull  times  the  steel  fabricating  company  meekly 
asks  the  privilege  of  competing  again  for  the  same  work. 
This  is  one  of  the  conditions  that  can  be  remedied  only 
by  concerted  and  firm  action  on  the  part  of  the  sellers; 
they  should  refuse  absolutely  to  bid  to  a  general  contrac- 
tor unless  he  agrees  that  if  he  gets  the  contract  he  will,  in 
good  faith,  sub-let  to  the  one  whose  bid  he  has  used  in  mak- 
ing his  own  estimates. 

To  call  for  bids  with  no  intention  to  let  on  the  lowest 
is  a  fraud  upon  bidders. 

VII 

To  make  an  estimate  on  even  a  simple  job,  costs  time 
and  money,  and  to  ask  for  bids  should  carry  the  assurance, 
express  or  implied,  that  barring  unforeseen  contingencies 
the  lowest  bidder  will  get  the  contract. 

Except  on  public  work  that  rule  does  not  generally  pre- 
vail— ^quite  the  reverse  is  the  practice. 

And  even  where  it  is  the  intention  of  the  buyer  to  give 
the  contract  to  the  lowest  bidder,  he  seldom  refuses  if  a 
higher  bidder  comes  in  at  the  eleventh  hour  and  revises 
his  bid  to  make  it  the  lowest.  That  is  to  say,  if  the  buyer 
does  not  negotiate  to  secure  such  revisions,  he  seldom  de- 
clines when  they  are  thrust  upon  him. 


RELATIONS  WITH  CUSTOMERS        197 

'  It  should  be,  if  not  the  law,  at  least  the  hard  and  fast 
custom  that  when  bids  are  called  for  the  award  must  go  to 
the  lowest,  and  further,  that  no  revisions  will  be  received, 
unless  for  good  reason  the  entire  bidding  is  again  thrown 
open. 

A  little  reflection  on  the  part  of  the  buyer  will  satisfy 
him  that  the  surest  way  to  get  the  lowest  price  is  to  ask  for 
but  one  bid  from  each  bidder  with  the  clear  understanding 
that  under  no  circumstances  will  a  second  proposition  be  re- 
ceived. 

The  comparatively  few  purchasing  agents  w^ho  pursue 
this  policy  insist  they  get  better  results  in  work,  deliveries 
and  prices  than  do  those  who  "haggle"  over  each  contract. 

The  bidder  in  need  of  the  work,  v^ho  knows  he  will 
have  but  the  one  chance,  makes  a  lower  proposition  than  he 
would  w^here  he  knows  he,  as  well  as  others,  will  have  op- 
portunities to  bid  lower. 

Both  courses  are  phases  of  the  old  competition,  of  the 
vicious  system  of  secret  bidding,  but  the  one  and  only  one 
bid  custom  is  incomparably  more  straightforward  than  the 
other ;  it  js  a  step  in  the  right  direction. 

So  long  as  members  of  an  association  are  free  to  bid 
what  they  please  and  do  so  independently  of  one  another, 
v/hy  may  they  not  resolve  in  advance  that  having  once 
made  their  bids  in  good  faith  they  will  not  revise  or  change 
them  ? 

Once  more  it  may  be  urged,  "The  resolution  is  in  re- 
straint of  trade,  the  law  will  not  permit." 

But  why? 

It  is  one  thing  for  a  combination  to  agree  upon  the  bid 
or  bids  that  shall  be  submitted,  that  controls  the  freedom 
of  each  member  to  compete ;  it  is  quite  a  different  thing  for 
the  same  combination  to  simply  agree  that  where  a  buyer 
calls  for  and  accepts  bids  he  must,  in  good  faith,  act  upon 
them,  for  that  in  no  wise  affects  a  member's  freedom  to 


198  THE  NEW  COMPETITION 

bid  what  he  pleases;  but  having  made  his  bid,  if  he  finds  he 
is  not  the  lowest,  he  must  not  rush  in  with  a  new  bid  to 
get  the  work  away  from  the  man  fairly  entitled  to  it. 

Suppose  the  government  let  work  in  such  a  tricky  man- 
ner, what  would  the  public  think? 

Suppose  on  opening  bids — say,  on  supplies  for  the  army 
or  navy — received  from  all  parts  of  the  country,  the  gov- 
ernment agents  should  step  around  to  nearby  contractors, 
give  them  the  tip  their  bids  are  not  the  lowest,  and  permit 
them  to  revise! 

What  is  right  and  legal  in  the  letting  of  public  con- 
tracts ought  to  be  right  and  legal  in  the  letting  of  private. 

There  is  no  good  reason  why  an  association  should  not 
be  permitted  to  impose  upon  its  members  the  same  restric- 
tions regarding  revised  bids  that  the  government  imposes 
upon  bidders,  and  there  is  every  reason  in  the  world  why 
customers  should  approve  such  restrictions,  for  they  are  in 
the  direction  of  the  one-price-to-all  policy. 

Buyers  and  purchasing  agents  who  pursue  the  fair  pol- 
icy are,  however,  comparatively  few  in  number. 

Two  things  are  done,  both  of  which  are  manifestly  un- 
fair. 

1.  Bids  are  called  for  as  if  contracts  would  be  let  on 
the  lowest,  but  with  no  intention  of  doing  so,  the  real  in- 
tention being  to  compare  the  bids  as  they  come  in  and  use 
them  as  a  basis  for  further  negotiations  to  get  lower  fig- 
ures. That  is  one  practice,  the  other  is  still  more  unfair — 
not  to  say  fraudulent. 

2.  A  buyer  calls  for  bids  but  intends  to  give  the  order 
to  a  favored  party;  the  others  do  not  know  they  have  no 
chance,  but  spend  time  and  money  in  making  up  their  esti- 
mates; if  the  favored  party's  bid  is  not  the  lowest  he  is 
told  what  figure  he  must  meet  to  get  the  order.  In  this 
case,  getting  bids  from  others  is  usually  for  the  purpose 
of  "keeping  up  appearances,"  of  seeming  to  buy  in  open 


RELATIONS  WITH  CUSTOMERS        199 

competition;  sometimes  the  other  bids  are  used  to  keep 
down  the  price  of  the  party  who  is  really  to  have  the  order. 
It  not  infrequently  happens  that  some  of  the  other  bid- 
ders learn  that  a  certain  party  is  to  have  the  order  and  to 
make  him  take  it  at  cost  they  put  in  bids  they  would  not 
care  to  have  accepted — this  is  a  combination  of  "brutal'' 
buying  and  "vindictive"  bidding — vicious  all  around. 

VIII 

We  come  now  to  a  practice  the  law  might  reach,  though 
not  so  effectually  as  an  open-price  association. 

We  refer  to  the  habit  buyers  have  of  saying  they  have 
lower  offers  when  such  is  not  the  fact. 

The  average  purchaser  prides  himself  on  his  ability  to 
get  the  better  of  sellers,  hence  he  does  not  hesitate  to  make 
any  statement  that  will  bring  a  lower  offer. 

He  takes  the  lowest  bid  he  has  and  coolly  says  to  the 
bidder,  "You're  way  up;  I've  half  a  dozen  offers  better'n 
yours." 

The  average  reader  whose  walk  in  life  does  not  bring 
him  in  contact  with  large  buying  will  be  amazed  to  learn 
that  such  practices  prevail  so  generally  and  that  they  are 
not  condemned  by  law,  for  they  are  a  shock  to  the  moral 
sense  of  mankind,  to  the  sense  of  fair  play. 

The  law  should  condemn  them,  but  it  is  feared  it  does 
not  reach  even  the  grossest. 

The  trouble  begins  in  the  country  village.  It  is  easy 
to  say  the  purchasing  agent  of  a  railroad  is  a  liar  when  he 
says  he  has  a  lower  bid  and  has  not,  but  when  we  trace  the 
practice  home  to  every  buyer  and  every  seller  of  butter 
and  eggs,  potatoes  and  cabbages;  to  every  farmer,  horse- 
dealer,  cattle-raiser;  to  every  carpenter,  painter  and  paper- 
hanger,  we  see  that  it  would  be  hard  to  so  draw  the  line  as 
to  condemn  the  railroad  buyer  and  not  touch  the  others. 


200  THE  NEW  COMPETITION 

The  law  is  made  to  fit  the  average  man,  consequently  it 
must  be  a  little  blind  to  his  habitual  failings — it  does  not 
arrest  him  when  a  little  drunk,  but  only  when  so  noisy  as 
to  disturb  others;  it  does  not  interfere  with  a  little  lying 
and  a  little  rascality,  but  only  with  conduct  so  notorious 
it  cannot  pass  unnoticed. 


IX 


The  open  price  movement  deprives  the  tricky  buyer  of 
his  advantage. 

To  refer  to  an  actual  instance: 

The  member  of  an  open-price  association  called  at  the 
office  of  the  purchasing  agent  of  a  large  railroad  to  see 
about  a  certain  order  for  which  he  had  put  in  a  bid.  The 
purchasing  agent  pretended  to  look  through  a  file  of  papers, 
then  said  blandly, 

* 'Sorry,  but  there  are  two  or  three  lower  bids  than 
yours." 

The  bidder  was  surprised,  "I  don't  see  how  that  can 
be,  I  am  sure  my  bid  is  the  lowest." 

"Not  by  a  good  deal,  but  I  am  willing  to  give  you  a 
chance  to  come  down " 

"Hold  on,"  the  bidder  interrupted,  "either  you  are 
stringing  me  or  some  one  else  is.  Here  are  all  the  bids  you 
have  received,"  and  he  drew  from  his  pocket  an  abstract 
of  bids. 

The  agent  looked  surprised.  "Where  did  you  get  that  ?" 

"I  am  a  member  of  the Open-Price  Asso- 
ciation, and  every  bid  made  on  work  is  reported  to  the 
secretary  the  moment  it  is  made  and  he  sends  this  ab- 
stract to  every  member  bidding.  According  to  this  re- 
port I  am  the  lowest  bidder.  If  you  have  a  lower  bid, 
whose  is  it?" 

"That's  my  afYair." 


RELATIONS  WITH  CUSTOMERS        201 

"All  right,  let  me  use  your  telephone  and  I  will  call 
up  the  secretary  and  tell  him  what  you  say;  he  will  get  in 
communication  with  all  who  have  bid  and  get  at  the  truth 
of  the  matter.'* 

The  agent  smiled,  "I  guess  you  got  me  cornered — you 
may  have  the  order." 

X 

It  cannot  be  reiterated  too  often  that  it  is  just  as  im- 
portant for  buyers  to  understand  and  approve  the  open- 
price  movement  as  it  .is  for  sellers,  and  therein  it  differs 
fundamentally  from  all  associations  under  the  old  compe- 
tition. 

The  cooperation 'of  buyers  is  needed  when  the  attempt 
is  made  to  draw  standard  forms  of  contracts  that  will  be 
just  to  both  sides. 

A  combination  of  buyers  must  decide  what  it — for 
them — wants;  a  combination  of  sellers  must  decide  what  it 
— for  them — wants.  There  is  no  other  way  to  accomplish 
anything. 

Yet  in  the  face  of  this  practical  necessity,  many  good 
lawyers  will  express  doubts  regarding  the  legality — under 
the  Sherman  law — of  a  combination  that  in  any  manner 
restrains  a  man's  freedom  to  make  a  fool  of  himself. 

When  a  body  of  men  draw  a  standard  form  of  con- 
tract and  say,  for  instance,  that  they  will  not  make  bids  in 
such  a  manner  that  the  purchaser  may  take  the  material 
if  it  pays  him  to  do  so,  or  not  take  it  if  it  pays  him  to 
back  out,  or  that  they  will  not  sign  contracts  which  leave 
all  differences  to  the  decision  of  the  purchaser  or  his  agent ; 
or  that  they  will  not  make  bids  to  a  general  contractor  un- 
less he  agrees,  in  good  faith,  to  sub-let  on  the  lowest — in  a 
sense  all  such  agreements  restrain  the  freedom  of  bidders, 
restrain  their  right  to  bid  recklessly,  and  to  enter  into  con- 
tracts that  are  unfair  and  one-sided. 


202  THE  NEW  COMPETITION 

But  in  a  broader  sense  such  agreements  extend  and  ex- 
pand trade,  for  they  place  it  on  a  sounder,  healthier  foot- 
ing. 

They  do  not  curtail  competition.  Given  a  standard 
form  of  contract,  it  matters  not  how  minute  the  provisions 
covering  every  detail  of  the  work,  so  long  as  the  final 
price  is  not  fixed,  competition  is  not  only  as  free  as  before 
the  adoption  of  the  contract,  but  freer,  since  each  man 
knows  precisely  upon  what  all  the  others  are  bidding;  the 
competition  becomes  a  matter  of  price  with  no  opportunity 
for  evasion,  no  chance  to  get  the  better  of  either  the  pur- 
chaser or  other  bidders  by  cunning  in  the  drafting  of  this 
provision  or  that. 


XI 


To  summarize  the  argument: 

Into  any  given  transaction  such  as  the  letting  of  a  con- 
tract a  great  many  elements  enter.  Practically  all  of  these 
elements  fall  under: 

I.  Time  of  performance;  2.  Manner  of  performance; 
3.  Terms  of  payment.  Either  side  may  combine  and  dic- 
tate any  two  of  these  elements  and  so  long  as  one  is  not 
fixed  competition  may  be  as  keen  as  before.  This  is  es- 
pecially true  when  terms  of  payment  are  left  open. 

An  association  of  sellers  may  adopt  the  most  stringent 
rules  regarding,  (i)  Time  of  performance,  and  (2)  Man- 
ner of  performance,  without  affecting  competition  or  re- 
straining trade,  so  long  as  each  is  left  free  to  bid  as  he 
pleases  regarding  (3)  Terms  of  payment. 

The  very  theory  of  the  open  price  movement  is  to  leave 
each  member  free  to  fix  his  own  price  on  his  products  or 
his  work,  but  to  reduce  to  a  minimum  every  other  eletnent 
of  uncertainty  in  the  trade. 


CHAPTER  XIII 
RELATIONS   WITH    SELLERS 


What  is  true  of  the  relations  of  the  individual  to  cus- 
tomers is  true — in  reverse  sense — of  his  relations  to  those 
from  whom  he  buys  his  raw  material ;  one  day  he  is  in  the 
ascendancy  getting  material  at  less  than  cost,  the  next  he 
is  on  his  knees  begging  supplies  at  any  price ;  he  is  the  vic- 
tim of  sudden  and  violent  market  changes. 

Business  is  a  lottery;  there  is  no  game  of  chance  with 
so  many  elements  of  uncertainty;  in  every  other  gamble 
the  player  may  calculate  to  a  fraction  of  one  per  cent,  the 
odds  for  or  against  him  and  take  the  risk  with  his  eyes 
open ;  in  commerce  men  "go  it  blind.*' 

The  Science  of  Trade  is  yet  to  be  written;  some  day 
it  will  be,  for  there  must  be  a  thread  of  reason  in  what  men 
do  to  make  money,  there  must  be  some  fundamental  prin- 
ciples the  discovery  and  observance  of  which  will  clear  up 
many  of  the  uncertainties  attending  business  transactions, 
there  must  be  some  basic  propositions  the  truth  of  which 
cannot  be  gainsaid. 

For  instance,  the  proposition,  ''No  man  should  sell 
goods  below  cost,"  is  one  of  the  first  dictates  of  common 
business  sense,  it  is  an  elemental  rule  of  business  conduct, 
but  it  is  only  a  bit  of  advice  and  has  nothing  to  do  with 
either  a  science  or  a  philosophy  of  trade,  for  it  simply 
means  that  if  a  man  does  sell  below  cost  he  will  lose  money. 

But  the  proposition,  "No  man  should  be  permitted  to 

203 


204  THE  NEW  COMPETITION 

sell  helozv  cost,"  is  fundamentally  different  and  its  discus- 
sion is  impossible  without  some  general  convictions  re- 
garding a  science  of  trade — the  validity  of  the  proposition 
depends  upon  the  theory  of  business  of  which  it  is  a  law  or 
rule  of  conduct. 


II 


Again,  "A  man  will  buy  where  he  can  buy  the  cheapest 
and  sell  where  he  can  sell  the  dearest/'  is  simply  a  state- 
ment of  a  natural  tendency  when  individuals  are  free  to  do 
as  they  please;  it  is  one  of  the  natural  conditions  that  a 
science  of  trade  must  take  into  consideration,  but  in  it- 
self it  amounts  to  no  more  than  the  statement,  a  man  will 
eat  when  hungry. 

A  philosophy  of  living  must  start  out  with  the  assump- 
tions that  men  will  drink  when  thirsty  and  eat  when  hun- 
gry, just  as  they  will  do  a  thousand  other  things  if  left  to 
themselves — the  philosophy  of  right  living  lies  in  ascer- 
taining those  rules  of  conduct  which  should  control  natural 
impulses  and  by  preventing  men  from  drinking  whatever 
they  please  whenever  they  are  thirsty  and  eating  as  much 
as  they  please  whenever  they  are  hungry,  make  better  men 
of  them. 

In  the  same  way  the  philosophy  of  trade  when  written 
will  seek  the  principles  that  underlie  commercial  conduct 
and,  finding  them,  develop  laws  and  rules  of  conduct,  the 
observance  of  which  will  make  men  better  manufacturers 
and  merchants. 

The  attempts  of  political  economy  in  this  direction  are 
fitful  and  feeble;  it  is  a  "dismal  science"  because  for  the 
most  part  it  contents  itself  with  observing  facts  and  draw- 
ing therefrom  generalizations  which  it  calls  "laws**  but 
which  are  still  no  more  than  facts. 

When  the  academic  political  economist  finds  that  men. 


RELATIONS  WITH  SELLERS  205 

if  left  to  themselves,  tend  to  buy  where  they  can  buy  the 
cheapest,  and  sell  where  they  can  sell  the  dearest,  he 
promptly  elevates  the  natural  tendency  to  the  place  and 
authority  of  a  law,  and  an  entire  school  of  economists  pro- 
claims the  irrelevant  proposition  that  this  "law''  must  not 
be  interfered  with. 

Whether  a  man  should  be  permitted  to  buy  where  he 
can  buy  the  cheapest  and  sell  where  he  can  sell  the  dearest 
is  a  question  which  involves  both  a  science  and  a  philosophy 
of  trade. 

The  mere  fact  that  nearly  every  one  will  respond, 
"Why,  of  course  he  should,"  does  not  alter  the  truth  that 
the  question  calls  for  some  systematized  conceptions,  other- 
wise how  is  it  possible  to  answer  so  positively  in  the  affirm- 
ative ? 

When  we  discuss  the  rights,  ethical  and  legal,  of  the 
individual  as  an  individual,  as  against  society  as  a  whole, 
we  are  on  ground  every  square  inch  of  which  has  been 
trodden  smooth,  but  when  we  discuss  the  economic  and 
practical  rights  of  the  individual  in  trade,  as  against  com- 
petitors and  the  public,  we  are  in  territory  where  little  sys- 
tematic work  has  been  done  and  notions  are  hopelessly  con- 
fused and  contradictory. 

Conditions  in  the  United  States  are  especially  interest- 
ing in  this  connection. 

Generally  speaking,  the  people  of  this  country  in  com- 
mercial intercourse  among  themselves  are  firmly  commit- 
ted to  the  proposition  that  the  life  of  trade  depends  upon 
the  freedom  of  each  man  to  buy  where  he  can  buy  the 
cheapest  and  sell  where  he  can  sell  the  dearest.  The 
theory  has  the  force  of  an  obsession;  laws  are  framed  to 
support  it  and  men  are  even  prevented  from  contracting 
away  the  precious  right. 

The  theory  of  anti-trust  legislation  is  that  trusts,  by 
controlling    competition   and    restraining   trade,    interfere 


2o6  THE  NEW  COMPETITION 

with  this  sacred  right  of  the  individual  to  buy  and  sell 
wherever  he  pleases. 

But  if  a  merchant  in  Detroit  crosses  the  river  to  buy 
cheaper  woolens  in  Canada  he  finds  this  "fundamental 
maxim  of  trade"  shattered  at  the  border. 

In  its  domestic  commerce  the  United  States  threatens 
to  imprison  men  who  restrain  the  individual's  liberty  to 
buy  where  he  can  buy  the  cheapest;  in  its  foreign  com- 
merce it  threatens  to  imprison  a  man  if  he  tries  to  exercise 
the  right. 

A  man's  philosophy  of  trade  must  be  narrow  indeed  if 
he  can  so  much  as  attempt  to  justify  the  proposition  that 
trade  must  flow  freely  along  one  side  of  a  business  street, 
but  not  across  the  street  because  an  invisible  geographical 
line  runs  through  the  center  of  the  street  marking  the  bor- 
ders of  Mexico  and  Arizona.^ 

The  man  who  succeeds  in  adjusting  his  philosophy  of 
commerce  to  this  political  condition,  wakes  up  some  fine 
morning  to  find  that  the  geographical  line  has  moved  or 
disappeared,  that  trade  flows  freely  where  it  was  ob- 
structed before — what  becomes  of  his  philosophy?  Like 
the  geographical  line,  it  moves  or  disappears ;  he  is  obliged 
to  confess  that  his  so-called  philosophy  was  nothing  more 
than  a  theory  of  political  expediency  or,  more  likely,  simply 
selfish  considerations  framed  in  high-sounding,  pseudo- 
patriotic  phrases. 

It  is  not  intended  here  to  argue  for  or  against  the  doc- 
trine of  protection,  but  only  to  point  out  the  fact  that  in 
domestic  commerce  free  trade  is  guaranteed  by  constitu- 
tional provision  and  a  variety  of  laws,  while  in  foreign 
commerce  it  is  prohibited  in  all  but  a  few  articles,  and 

*The  line  dividing  Mexico  from  this  country  runs  through  the 
center  of  the  business  street  of  Nogales,  Arizona.  The  stores  on  one 
side  are  Mexican,  those  on  the  other  American.  Custom  officers  are 
stationed  on  each  side  of  the  line  to  see  that  no  thrifty  housewife 
passes  with  a  paper  of  pins. 


RELATIONS  WITH  SELLERS  207 

forbidden  not  for  the  sake  of  revenue,  but  deliberately  for 
the  avowed  purpose  of  preventing  men  from  buying  where 
they  can  buy  the  cheapest. 


Ill 


The  brief  story  of  an  industry  will  suffice  to  illustrate 
the  argument. 

"The  legislation  for  the  establishment  of  the  tin-plate 
industry  rests  upon  three  ideas:  first,  that  seventy  mil- 
lions of  people  should  not  depend  upon  Welsh  works  for 
tin  plate;  second,  that  the  foreign  tin  plate  is  poorly  made 
and  does  not  meet  our  particular  wants;  third,  that  the 
country  needs  a  new  industry  in  which  more  labor  can  be 
employed.  In  these  three  statements  we  have  a  blending 
of  the  commercial,  the  economic,  and  the  political.*'  ^ 

It  will  scarcely  be  urged  that  these  "arguments'*  are 
based  upon  any  philosophy  of  commerce,  either  profound 
or  superficial;  they  sound,  rather,  like  the  reasoning  of 
men  with  "axes  to  grind,"  and  so  they  were,  for  "behind 
the  scenes  another  class,  the  men  who  owned  supposed  tin 
mines,  endeavored  to  secure  the  attention  of  Congress. 
They  were  anxious  that  the  tin-plate  industry  should  be 
encouraged,  provided  that  block  tin  was  put  on  the  tariff 
list." 

"Prior  to  1890  no  tin  plate  had  been  made  in  this  coun- 
try. The  McKinley  tariff  of  that  year,  w^ith  its  high  duties 
on  plate  and  pig-tin,  was  the  beginning  of  the  industry. 
The  growth  of  the  industry  was  due  to  many  favoring 
conditions.  Capital  was  attracted,  and  by  1898  there  were 
*forty-one  plants  operating  235  mills.'  ^ 

*  William  Z.  Ripley,  Ph.D.,  "Trusts,  Pools  and  Corporations,"  pp. 
295-296.  The  chapter  on  the  Tin-Plate  Industry  is  by  Frank  L.  Mc- 
Vcy,  of  the  University  of  Minnesota. 

'In  March,  1898,  Tin  and  Terne  said:  "The  market  has  continued 


2o8  THE  NEW  COMPETITION 

"The  excessive  competition  of  the  many  tin-plate  plants 
established  under  the  hot-house  influences  of  the  tariff  of 
1890,  in  company  with  the  rising  prices  of  materials,  has 
brought  about  the  formation  of  a  combination  known  as  the 
American  Tin-Plate  Company."    ^ 

"It  will  be  seen  from  what  has  been  already  said  that 
the  tin-plate  industry  was  in  far  from  a  healthy  condition. 
Everything  pointed  to  demoralization.  It  was  very  natural 
that,  under  these  conditions,  repeated  attempts  should  be 
made  to  form  a  combination." 

The  combination  was  formed  and  proceeded  to  re- 
organize the  business.  The  organ  of  the  trade  said  in 
1899  *  ^  "-^t  the  present  time  a  number  of  the  plants  have 
been  closed  down.  Among  them  are  some  of  the  largest 
and  best  equipped  mills  in  the  country.  The  company  now 
owns  every  tin-plate  plant  in  the  United  States  making  a 
product  for  the  general  trade.  Just  how  long  these  estab- 
lishments are  to  remain  closed  is  impossible  to  say,  but  un- 
doubtedly the  company  is  trying  to  find  out  to  just  what 
extent  it  is  necessary  to  operate  the  different  plants  to 
supply  the  demand.  If  it  is  discovered  that  all  or  nearly 
all  are  necessary,  two  lines  of  policy  are  open  to  the  di- 
rectors: first,  to  operate  all  the  mills  owned  by  the  com- 
pany; second,  to  close  the  more  poorly  equipped 'and  badly 
situated  mills  and  to  increase  the  producing  power  of  the 
better  plants.  It  is  more  likely  that  the  second,  or  at  least 
a  modification  of  it,  will  be  followed." 

The  combination  was  very  successful,  and  in  1901  was 
taken  over  by  the  United  States 'Steel  Corporation. 

As  this  chapter  is  being  written  the  Government  has  a 
suit  pending  to  dissolve  the  last-named  corporation  on  the 

very  unsettled  and  unsatisfactory  to  both  buyer  and  seller  alike.    War 
and  rumors  of  war,  trusts  and  rumors  of  trusts,  are  having  a  disturb- 
ing influence,  and  in  no  branch  of  metal  industry  have  prices  been  as 
unsettled  and  confusing  as  in  tin-plates." 
*  Tin  and  Term,  February  23,  1899. 


RELATIONS  WITH  SELLERS  209 

ground  that  it  was  organized  to  restrain  and  monopolize 
trade  contrary  to  the  Sherman  law,  one  of  the  industries 
being  the  tin  plate. 

In  its  various  attitudes  toward  the  industry  the  Gov- 
ernment has  "boxed  the  compass." 

Several  millions  of  people  were  buying  tin  plate  where 
they  could  buy  it  cheapest — to  wit,  England. 

The  Government,  at  the  urgent  solicitation  of  interested 
parties,  makes  a  law  to  the  effect  that  the  people  shall  not 
buy  where  they  can  buy  the  cheapest,  but  must  buy  where 
tin  plate  is  dearest — to  wit,  at  home. 

Then,  when  competition  at  home  reduces  prices  to  cost 
and  below,  the  manufacturers  naturally  combine  to  get 
what  the  tariff  promised  them — profits ;  whereupon  the  Gov- 
ernment steps  in  and  asks  that  their  combination  be  dis- 
solved because  it  controls  competition  and  restrains  trade 
— precisely  the  two  objects  Congress  had  in  mind  when  it 
passed  the  McKinley,  the  Dingley,  and  the  Payne  tariff 
bills. 

The  apologist  for  the  Government  will  urge  that  in 
erecting  a  tariff  wall  against  outside  competition  the  least 
protected  manufacturers  inside  the  arena  can  honorably  do 
is  to  slaughter  one  another  by  cut-throat  competition — an 
argument  that  does  not  appeal  with  irresistible  force  to  the 
fellow  on  the  verge  of  bankruptcy. 


IV 


Whatever  may  be  said  for  or  against  the  policy,  it  is 
undeniably  true  that  the  theory  of  protection  is  diametri- 
cally opposed  to  the  proposition  that  a  man  should  buy 
where  he  can  buy  the  cheapest  and  sell  where  he  can  sell 
the  dearest. 

It  is  based  upon  the  fundamentally  different  proposi- 


2IO  THE  NEW  COMPETITION 

tion,  namely,  that  a  man's  freedom  to  buy  and  sell  may  be 
controlled  and  restrained  in  the  interest  of  the  community, 
that  even  the  entire  community  may  be  prevented  from 
buying  what  it  needs  where  it  can  buy  the  cheapest. 

Whether  this  proposition  be  sound  or  unsound  need  not 
be  discussed  here,  suffice  it  to  say  it  has  been  at  the  foun- 
dation of  the  commercial  policy  of  this  country  since  the 
adoption  of  the  first  protective  tariff,  and  in  one  form  or 
another  it  has  influenced  the  commerce  of  the  world  so 
long  as  we  have  any  record  of  men's  actions. 

From  time  immemorial  trade  has  been  restrained  and 
hampered  in  many  directions,  as  some  restrictions  fall  into 
disrepute  and  disappear  others  appear,  until  there  is  not 
much  left  of  the  doctrine  that  a  man  should  be  free  to 
buy  where  he  can  buy  the  cheapest  and  sell  where  he  can 
sell  the  dearest. 

If  this  freedom  is  restrained  as  between  nations  and 
localities,  may  it  not  be  possible  that  it  should  be  controlled 
as  between  man  and  man? 

Those  who  say  it  should  not  be  restrained  as  between 
nation  and  nation,  and  locality  and  locality,  will  quickly 
say  it  should  not  be  restrained  as  between  man  and  man, 
but  the  conclusion  by  no  means  follows: 

It  is  one  argument — and  a  strong  one — that  nations 
should  interfere  as  little  as  possible  with  the  flow  of  trade 
from  country  to  country,  locality  to  locality,  since  such 
interference  is  largely  wholesale  and  undiscriminating,  mak- 
ing paupers  here  and  millionaires  there;  but  it  is  quite  an- 
other thing  to  say  that  the  people — employers  and  em- 
ployees— whose  fortunes  and  whose  bread  hang  upon  the 
prosperity  of  an  industry,  shall  not  be  permitted  to  meet 
conditions  and  by  united  action  avoid  the  disastrous  ef- 
fects of  irrational  competition ;  it  is  a  very  different  thing  to 
say  they  shall  not  unite  and  demand,  as  an  economic  right, 
that  those  from  whom  they  buy  shall  sell  at  fair,  uniform 


RELATIONS  WITH  SELLERS  211 

and  stable  prices,  and  that  those  to  whom  they  in  turn  sell 
shall  pay  fair,  uniform  and  stable  prices. 

At  all  events,  these  questions  are  open  to  discussion, 
and  certainly  in  no  country  that  maintains  a  protective 
tariff  can  the  discussion  be  foreclosed  by  any  appeal  to  so 
doctrinaire  a  proposition  as  that  "men  should  be  free  to 
buy  where  they  can  buy  the  cheapest  and  sell  where  they 
can  sell  the  dearest." 


A  man  may  have  an  ^'unalienable"  right  to  "life,  liberty, 
and  the  pursuit  of  happiness,"  as  the  Declaration  of  Inde- 
pendence puts  it,  but  whatever  that  sounding  phrase 
may  mean  in  the  abstract,  it  is  certain  he  has  no  "unalien- 
able" right  to  buy  goods  below  their  cost  of  production  and 
sell  them  above  their  fair  value,  he  has  no  abstract  right 
to  ruin  either  those  from  whom  he  buys  or  those  to  whom 
he  sells,  nor  has  he  any  "unalienable"  right  to  ruin  com- 
petitors. 

He  has  no  divine  right  to  hire,  children  to  run  his  ma- 
chines, women  to  do  men's  work  in  his  factories,  men  to 
labor  twelve  hours  per  day. 

Our  fancied  "rights"  to  do  all  these  things  have  the 
force  of  custom,  nothing  more.  Every  relation  in  life  is 
open  to  investigation,  discussion  and  readjustment  on  a 
right,  or  righter,  basis. 

Rights  result  from  and  are  entirely  dependent  upon  re- 
lations. What  one  man's  rights  are  as  against  another 
turn  upon  his  relations  to  the  other;  the  rights  of  father 
against  son,  brother  against  brother,  friend  against  friend, 
partner  against  partner,  employer  against  employee,  com- 
petitor against  competitor,  buyer  against  seller,  all  depend 
upon  and  vary  widely  with  those  relationships. 

In  most  of  these  relationships,  and  particularly  in  trade 


212  THE  NEW  COMPETITION 

relations,  the  world  has  been  too  long  content  to  go  on  from 
generation  to  generation  upon  the  assumption  that  vague 
propositions  of  a  superficially  philosophic  character  are 
all  that  are  needed,  whereas  the  truth  is  that  each  of  these 
relationships — especially  every  trade  relation — demands 
critical  and  exhaustive  inquiry  to  ascertain  the  rules  that 
should  govern  to  secure  the  best  results.  This  inquiry  must 
be  approached  with  an  open  mind,  one  must  disabuse  one's 
self  of  preconceived  notions  and  prejudices,  and  be  pre- 
pared to  follow  the  logic  of  facts  whithersoever  it  leads 
— it  is  most  certain  to  lead  far  afield  from  prevailing 
theories  and  practices. 


VI 


To  return  to  the  particular  relations  under  discussion — 
those  of  buyer  to  seller — there  must  be  propositions  of  a 
general  and  practical  character  that  should  be  observed  by 
both  sides,  but,  so  far  as  the  writer  knows,  no  attempt  has 
ever  been  made  to  work  out  these  propositions  on  a  scien- 
tific basis. 

Before  the  ancient  and  anarchistic  assumption  that  every 
man  has  the  right  to  buy  where  he  can  buy  the  cheapest 
and  sell  where  he  can  sell  the  dearest — all  rights  disappear ; 
it  is  each  man  for  himself,  regardless. 

There  is  scarcely  a  man  in  business  who  would  not 
gladly  give  up  this  so-called  "right"  to  buy  where  he  can 
buy  the  cheapest  if  he  could  be  assured  of  the  following: 

1.  That  he  is  paying  no  more  than  a  fair  profit  on 
what  he  buys. 

2.  That  his  competitors,  buying  substantially  the  same 
quantities  under  substantially  the  same  conditions,  pay  the 
same  prices. 

3.  That  the  price  of  what  he  buys  will  be  changed 


RELATIONS  WITH  SELLERS  213 

only  after  sufficient  notice  to  enable  him  to  adjust  his 
stock  accordingly. 

In  other  words,  what  every  buyer — especially  every 
buyer  who  buys  to  sell — wants  to  reduce  the  elements  of 
uncertainty  of  trade  are : 

1.  Fair  prices. 

2.  Uniform  prices. 

3.  Stable  prices. 

Of  those  requirements,  uniform  prices,  and  stable  prices, 
are  of  far  more  importance  in  eliminating  the  uncertainties 
of  business  than  fair  prices. 

In  fact,  a  fair  price  must  be  also  a  uniform  and  a  stable 
price,  else  it  is  not  fair. 


VII 


A  may  be  able  to  sell  a  ton  of  pig-iron  at  $10.00  and 
make  $1.00  profit.  B,  because  he  owns  a  mine  or  by  rea- 
son of  the  better  location  of  his  furnace,  may  be  able  to 
sell  a  ton  at  $9.50  and  make  $1.00,  but  the  maker  of  steel 
who  buys  pig-iron  is  not  interested  in  the  relative  costs 
of  A  and  B,  nor  is  he  vitally  interested  in  getting  his  iron 
at  $9.50  instead  of  $10.00;  what  he  is  interested  in  is  to  be 
certain  that  he  pays  no  more  for  his  iron  than  competing 
steel  makers  pay.  There  is  not  a  steel  maker  in  the  coun- 
try— aside  from  those  who  love  the  "gamble"  in  the  busi- 
ness— who  would  not  •  rather  pay  a  iixed  price — whether 
high  or  low  is  immaterial — than  pay  one  price  to-day  and 
another  to-morrow,  and  know  that  possibly  competitors  are 
getting  some  secret  concessions  that  give  them  an  ad- 
vantage. 

As  things  now  are  the  purchasing  of  pig-iron  is  one 
of  the  big  risks  of  the  business,  one  of  the  elements  of  un- 
certainty that  should  be  eliminated  if  possible. 


214  THE  NEW  COMPETITION 

The  speculative  elements  may  be  reduced  to  a  minimum 
in  two  ways: 

A.  By  concerted  effort  on  the  part  of  the  parties  in- 
terested to  frame  their  own  rules  of  conduct. 

B.  By  law. 

The  law  should  intervene  only  after  failure  on  the  part 
of  the  parties  themselves  to  act. 

It  cannot  be  too  often  pointed  out  that  the  law  should 
be  a  last  resort,  since  at  best  it  is  the  intervention  of  un- 
skilled legislators  to  do  for  industry  what  skilled  operators 
neglect  to  do. 

Unhappily,  as  has  been  remarked,  the  law  in  this  coun- 
try makes  it  exceedingly  difficult  for  the  men  interested 
to  do  anything  at  all.  The  law  literally  says,  "You  shall 
not  cooperate  to  help  conditions,"  and  it  says  this  under 
threat  to  prosecute  them  as  criminals. 

For  a  period  of  years  this  country  has  tried  the 
experiment  of  persistently  scattering  business  men 
who  come  together  to  better  conditions.  Most  of  their 
efforts  were  undoubtedly  directed  toward  regulation 
of  prices  and  competition,  and  in  many  instances 
were  arbitrary,  oppressive  and  wrong — ^but  whether 
right  or  wrong  the  law  objected  and  said,  "Separate, 
go  back  to  your  offices  and  factories  and  fight  along  the 
old,  wasteful  lines." 

At  the  moment  there  is  a  pronounced  reaction ;  the  pub- 
lic sees  that  some  sort  of  regulation  is  necessary  to  miti- 
gate the  evils  of  the  old  competition,  that  unless  these  evils 
are  mitigated  the  strong  will  surely  eliminate  the  weak,  and 
monopoly  result. 

But  does  Congress  propose  to  repeal  the  law  that  for- 
bids cooperative  effort  ?  Not  at  all.  A  certain  element  has 
a  very  different  programme;  it  proposes  to  leave  in  force, 
and  even  make  more  drastic,  laws  against  codperation,  to 
create  a  federal  commission,  to  do  what  business  men  would 


RELATIONS  WITH  SELLERS  215 

like  to  do,  and  in  large  measure  could  better  do  for  them- 
selves. 

What  will  be  the  result?  Precisely  what  has  happened 
with  the  railroads  under  the  Interstate  Commerce  Law. 
The  Interstate  Commerce  Commission  shuts  its  eyes  to  the 
fact  that  the  roads,  regardless  of  the  Sherman  law,  meet 
regularly  and  absolutely  stifle  competition  so  far  as  rates 
are  concerned;  only  through  the  Traffic  Associations  can 
the  law  be  enforced. 

If  Congress  creates  a  Federal  Commission  to  supervise 
interstate  industries,  the  Commission  will  be  .powerless  to 
accomplish  anything  in  a  large  way  without  the  systematic 
cooperation  of  associations  of  parties  interested. 

A  federal  law  of  a  constructive  character  covering  in- 
terstate industries  is  a  necessity,  a  federal  interstate  indus- 
trial commission  like  unto  the  Interstate  Commerce  Com- 
mission is  also  a  necessity,  but  the  prime  object  of  both  law 
and  commission  should  be  to  encourage  the  formation  of 
associations,  each  embracing  an  entire  trade  or  industry, 
as  practical  instrumentalities  to  suppress  abuses  and  work 
out  reforms. 


VIII 


There  are  two  classes  of  buyers : 

A.  Those  who  buy  to  consume. 

B.  Those  who  buy  to  sell. 

The  relation  of  the  ultimate  consumer  to  the  seller  of 
what  he  needs  or  wants  is  different  from  that  of  the  pro- 
ducer or  dealer  to  the  seller  of  the  goods  or  raw  material 
he  needs  in  his  business. 

It  is  commonly  assumed  that  the  ultimate  consumer  has 
but  one  interest,  to  buy  where  he  can  buy  the  cheapest — 
if  a  farmer  is  forced  to  sell  his  produce,  or  a  bankrupt  shop- 
keeper his  goods,  below  cost,  that  is  supposed  to  be  the  con- 


2i6  THE  NEW  COMPETITION 

sumer's  golden  opportunity — per  contra,  if  farmers  or  mer- 
chants combine  to  get  a  little  profit  on  what  they  have  to 
sell  the  consumer  complains  so  loudly  the  law  takes  notice. 

Even  the  ultimate  consumer  might  be  better  off  if  he 
could  be  assured  of  fair,  uniform  and  stable  prices,  if  wide 
and  sudden  fluctuations  could  be  checked,  but  however 
opinions  may  differ  on  this  point,  there  can  be  no  question 
that  the  producer,  the  merchant,  the  contractor,  the  manu- 
facturer, would  be  incomparably  better  off  if  he  could 
know  that  prices  are  uniform  and  will  remain  stable  for 
given  periods  of  time. 

The  consumer's  first  interest  is  in  what  he  himself 
pays;  the  producer's  first  interest  is  in  what  his  competitor 
pays. 

A  carpenter  contractor  in  a  small  town  likes  to  buy  his 
lumber  as  cheap  as  he  can,  but  whether  he  pays  a  dollar  per 
thousand  feet  more  or  less  is  of  slight  importance  as  com- 
pared with  the  certainty  that  no  other  carpenter  in  the  place 
is  buying  for  less. 

What  chance  does  the  painter  stand  if  in  figuring  on  a 
job  he  is  obliged  to  figure  his  paint  at  one  price,  while  a 
rival  gets  a  secret  discount  of  ten  per  cent,  from  the  paint 
dealer  ? 

These  are  no  hypothetical  illustrations,  but  conditions 
that  prevail  everywhere. 

The  merchant  is  far  more  vitally  concerned  in  what 
rival  competitors  pay  for  their  goods  than  he  is  in  what 
he  pays  for  his  own.  Under  secret  competition  he  cannot 
find  out  what  they  pay,  so  there  is  but  one  thing  for  him 
to  do,  go  ahead  in  the  dark  and  protect  himself  by  buying 
as  cheaply  as  he  can,  even  to  the  extent  of  buying  in- 
ferior goods  and  passing  them  off  for  better. 

Shoddy,  adulterations,  short  weights,  fraud,  deceptions, 
are  all  the  logical  results  of  buying  under  the  old  compe- 
tition. 


RELATIONS  WITH  SELLERS  217 

Profit  is  largely  an  individual  matter,  price  is  of  social 
concern. 

That  A  should  make  a  living  out  of  his  business  is  of 
importance  to  the  entire  community,  but  whether  he  makes 
much  or  little  over  his  living  is  of  slight  importance  as  com- 
pared with  the  effect  of  the  prices  he  places  on  his  goods. 


IX 


Has  a  manufacturer  the  right — ethical  or  economic — to 
sell  a  dealer  a  six  months'  supply  of  goods  at  one  price  and 
the  next  day  or  week  lower  the  price  to  others  in  the  trade  ? 

The  answer  to  that  and  similar  questions  will  depend 
upon  one's  philosophy  of  business.  Those  who  believe 
that  ''All's  fair  in  trade  and  war"  will  have  no  scruples,  and 
that  is  the  maxim  of  the  old  competition,  but  those  who 
see  that  a  new  competition  is  coming,  that  the  old,  with  its 
sharp  practices,  merciless  methods,  is  passing,  will  have  no 
hesitation  in  answering  that  a  man  has  no  right — moral  or 
economic — to  sell  what  he  produces  at  such  prices  as  he 
pleases  regardless  the  effect  his  conduct  may  have  upon 
the  welfare  of  others. 

Many  buyers  are  strong  enough  to  insist  the  seller  shall 
agree  to  give  them  the  benefit  of  any  lower  prices  he  may 
make  in  six  months  or  a  year.  The  small  buyer  is  not  in  a 
position  to  demand  this  protection,  he  is  helpless  and  loses 
if  prices  go  down. 

Many  a  small  merchant  and  manufacturer  is  driven  out 
of  business  because  he  cannot  command  the  terms,  the  re- 
bates, the  concessions,  the  protection  given  his  large  com- 
petitors. 

The  big  jobber  is  always  well  ''taken  care  of"  by  the 
manufacturers  whose  products  he  handles. 

The  open-price  association,  pressed  to  its  logical  devel- 


2i8  THE  NEW  COMPETITION 

opment,  will  bring  all  these  things  out  in  the  open — every 
price,  every  rebate,  every  discount,  every  discrimination, 
and  once  out  in  the  open,  every  price,  every  rebate,  every 
discount,  every  discrimination  that  is  unfair  will  go. 

The  tendency  will  be  toward  fair  prices,  uniform  prices, 
and  stable  prices. 

That  means  that  sellers  and  buyers  will  cooperate  to- 
gether to  control  fluctuations  in  prices ;  prices  will  be  quoted 
and  maintained  for  definite  periods;  purchases  will  be 
made  and  sales  made  with  reference  to  price-changes  that 
will  be  announced  such  periods  in  advance  as  different  trades 
and  industries  require. 

These  are  practical  propositions  of  wide-reaching  im- 
portance, and  can  be  worked  out  only  by  the  men  actually 
concerned,  but  they  will  be  worked  out  under  the  super- 
vision of  some  Government  commission  or  agency  the  first 
duty  of  which  will  be  to  see  that  prices  are  maintained  pre- 
cisely as  agreed,  that  there  are  no  evasions,  no  secret  con- 
cessions by  unscrupulous  makers  and  dealers  eager  for 
trade. 

In  short,  the  influence  of  the  Government  will  be  ex- 
ercised to  Hx  prices  and  keep  them  fair  and  stable  instead 
of,  as  now,  to  demoralize  prices  and  make  them  more  un- 
fair and  less  stable. 

The  suggestion  sounds  revolutionary,  but  it  is  not  new, 
for  that  has  been  the  course  of  events  in  the  railroad  world. 


The  railroad  situation  is  far  more  complex  than  that 
of  any  industry.  The  cost  of  transporting  a  passenger  or 
a  ton  of  freight  per  mile  is  not  the  same  to  any  two  roads, 
or  to  any  one  road  for  two  succeeding  nxjuths. 

Yet  the  roads  are  compelled  by  law  and  aecessity  to  get 
together  to  Hx  rates  and  maintain  thbse  ilB-tes,  making  no 


RELATIONS  WITH  SELLERS  219 

changes  without  due  notice  in  advance — and  all  this  under 
the  supervision  of  the  Interstate  Commerce  Commission. 

Nobody  complains  because  rates  are  £xed,  and  main- 
tained for  long  periods  regardless  of  fluctuations  in  cost  of 
service;  nobody  asserts  the  right  of  each  company  to  charge 
what  it  pleases,  to  carry  freight  and  passengers  at  a  loss 
if  it  sees  fit — those  notions  have  long  been  relegated  to  the 
scrap-heap;  they  belong  to  the  good  old  days  of  railroad 
buccaneering,  when  *The  public  be  damned"  was  the  motto 
that  hung  on  every  wall  from  the  president's  office  to 
switchman's  shanty.^ 

The  new  theory  that  is  gradually  making  headway  is 
that  while  rates  must  bear  a  certain  relation  to  cost,  includ- 
ing fair  returns  on  investment,  the  question  of  profit  is  of 
far  less  importance  than  the  question  of  uniformity  and 
equality  in  distribution  of  charges. 

In  other  words,  so  long  as  the  building  and  operation 
of  railroads  is  left  to  individual  enterprise,  it  is  conceded 
that  there  is  a  minimum  return  to  stockholders  below  which 
the  service  will  be  impaired,  but  whether  the  profits  exceed 
this  minimum  one  per  cent,  or  ten  per  cent,  is  of  less  im- 
portance to  shippers  and  the  public  generally  than  the^d^ues- 
tion  of  uniformity  of  rates. 

At  present  in  every  rate  controversy  two  distinct  ques- 
tions are  raised  and  argued  with  great  heat,  with  the  result 
that  true  issues  are  obscured. 

^The  Government  even  sees  the  wisdom  of  calling  a  halt  to  ruin- 
ous competition: 

"San  Francisco,  March  31.— A  cut  in  sea  freight  rates  of  from 
25  to  40  per  cent,  for  cargoes  shipped  from  San  Francisco  to  New 
York  has  been  announced  by  the  American-Hawaiian  Steamship  Com- 
pany. The  company  offered  to  contract  with  San  Francisco  shippers  at 
30  cents  per  100  pounds. 

"The  reductions  follow  a  cut  recently  made  by  the  Pacific  Mail 
Company,  which  was  prohibited  from  further  rate-slashing  by  the 
United  States  government,  which  Hxed  definite  commodity  rates.  The 
action  of  the  American-Hawaiian  Company  is  believed  to  be  the  result 
of  competition  by  independent  steamers." 


220  THE  NEW  COMPETITION 

The  question  whether  a  proposed  rate  is  sufficiently 
above  the  cost  of  service  to  yield  a  fair  return  on  invest- 
ment ;  the  question  whether  a  proposed  rate  is  fair  to  ship- 
pers and  localities  affected. 

The  two  questions  are  not  necessarily  connected. 

A  rate  may  be  below  cost  of  service  and  manifestly 
unfair  to  certain  shippers  and  localities;  or  a  rate  may  be 
double  what  it  should  be,  and  yet  be  so  fair  to  both  shippers 
and  localities  that  no  one  wishes  to  disturb  it. 

The  ideal  rate  is  one  that  is  fair  to  all  parties,  but  the 
ideal  rate  will  ever  remain  an  *'ideal,"  approachable  but 
never  attainable. 

In  the  rate  controversies  that  constantly  arise,  the  at- 
tention of  the  public  is  too  apt  to  be  diverted  from  the  con- 
sideration of  adjustment  and  distribution  to  that  of  cost 
and  returns  to  the  roads. 

The  contest  between  the  roads  clamoring  for  higher 
rates  and  this  or  that  interested  body  of  shippers  or  this 
or  that  locality  crying  for  lower  rates,  is  an  entirely  selfish 
one;  the  particular  shippers  and  towns  will  be  highly  de- 
lighted if  they  get  reductions  that  ruin  other  shippers  and 
other  towns — their  real  object  is  to  get  an  advantage  over 
their  rivals;  they  rouse  the  public  by  talking  loudly  about 
the  profits  of  the  roads,  etc.,  etc.,  but  all  that  is  "sand  in  the 
eyes";  the  same  shippers  and  towns  will  fight  just  as 
strenuously  if  the  roads  propose  to  reduce  freights  to  other 
localities. 

Time  was,  and  that,  too,  in  the  recollection  of  every 
man  of  fifty,  when  the  railroads  of  the  country  did 
openly  and  believed  they  had  the  right  to  do  the  following 
things : 

1.  Make  such  rates  as  they  pleased  and  change  them 
as  they  pleased. 

2.  BuiJd  up  favored  localities  and  ruin  others. 

3.  Build  up  favored  shippers  and  ruin  others. 


RELATIONS  WITH  SELLERS  221 

4.  "Get  even"  with  villages,  towns,  cities  that  did  not 
pass  such  ordinances  as  they  wanted. 

5.  Ruin  competing  lines  by  savage  rate  wars — wars 
that  frequently  reached  the  stage  of  carrying  passengers 
for  nothing. 

But  all  these  conditions  have  changed,  not  a  railroad 
in  the  country  is  permitted  to  do  any  one  of  these  things. 

But  the  merchants  and  the  manufacturers  of  the  coun- 
try, the  large  corporations  not  only  may,  but  are  encour- 
aged by  law  to : 

1.  Quote  such  prices  as  they  please  and  change  them 
as  they  please. 

2.  Build  up  favored  localities  and  ruin  others. 

3.  Build  up  favored  customers  and  ruin  others. 

4.  Get  even  with  any  place  or  any  buyer  by  selling  to 
rivals  at  lower  prices. 

5.  Ruin  competitors  by  savage  price  wars — wars  that 
frequently  reach  the  stage  of  selling  far  below  cost. 

How  long  will  this  anomalous  condition  last?  How 
long  will  it  be  before  the  country  insists  upon  the  same 
supervision  of  unfair  and  vindictive  prices  that  it  demands 
regarding  rates?  Possibly  the  Clayton  and  Trade  Com- 
mission laws  are  answers  to  this  question. 

XI 

One  thing  is  certain  in  this  connection,  the  power  of  the 
individual  to  run  his  business  as  he  pleases  is  going  to  be 
greatly  curtailed,  curtailed  in  much  the  same  way  the  power 
of  the  railroad  company  to  run  its  road  has  been  curtailed. 

As  already  said,  there  are  but  two  ways  for  this  re- 
straining influence  to  be  exercised,  by  law — along  social- 
istic  lines ;  or  by  voluntary  cooperation — ^along  more  highly 
developed  individualistic  lines.^ 

1  The  following  description  of  the  workings  of  railway  traffic  asso- 
ciations is  by  a  man  prominent  in  the  railroad  world.  In  operation  they 


222  THE  NEW  COMPETITION 

are  not  unlike  the  workings  of  the  Open-Price  Associations  advocated 
in  this  book: 

"Conferences  between  railroads  on  subjects  affecting  the  general 
interest  are  conducted  by  means  of  the  so-called  Traffic  Associations. 
These  associations  are  voluntary,  non-incorporated  organizations,  the 
membership  of  which  consists  of  the  railroads  occupying  the  same  or 
contiguous  geographical  territory.  Each  organization  has  a  printed 
constitution  and  by-laws,  the  special  feature  of  which  is  that  any  mem- 
ber of  the  organization  who  proposes  to  make  any  change  in  any 
existing  practice,  will  notify  his  associates  at  least  thirty  days  in  ad- 
vance of  the  taking  effect  of  the  proposed  change.  In  other  words,  he 
obligates  himself  to  give  to  his  associates  the  same  notice  that  the 
federal  law  requires  he  shall  give  to  the  Interstate  Commerce  Commis- 
sion. He  is  free  at  all  times  to  do  any  and  all  things  he  may  desire, 
but  has  obligated  himself  that  before  making  same  effective  he  will 
give  the  notice  referred  to,  to  the  other  members  of  the  association. 

"Covering  each  of  these  geographical  divisions  above  referred  to, 
there  are  two  organizations,  one  handling  matters  relating  to  freight 
traffic  and  the  other  handling  matters  relating  to  passenger  traffic. 
The  Trunk  Line  Committee,  consisting  of  two  bodies,  one  devoted  to 
freight  matters  and  the  other  to  passenger  matters,  covers  the  terri- 
tory between  the  Atlantic  Ocean  and  Pittsburgh  and  Buffalo,  and 
north  of  the  Potomac  River. 

"The  Central  Freight  Association  and  the  Central  Passenger  Asso- 
ciation cover  the  territory  from  Pittsburgh  and  Buffalo  to  Chicago  and 
St.  Louis,  from  the  Great  Lakes  to  the  Ohio  River. 

"The  Western  Freight  Association  and  the  Western  Passenger 
Association  cover  the  territory  from  St.  Louis  and  Chicago  to  the 
Missouri  River;  and  the  territory  west  of  that  point  to  the  Pacific 
Coast  is  covered  by  the  Trans-Continental  Association. 

"In  the  South  the  territory  is  covered  by  the  Southeastern  Asso- 
ciation and  the  Southwestern  Association. 

"In  addition  to  these  major  associations,  there  are  innumerable 
smaller  associations,  handling  local  matters,  some  of  them  working  in- 
dependently, and  others  as  sub-committees  to  the  main  organizations 
mentioned. 

"These  associations  have  paid  officers  and  large  clerical  forces. 
The  principal  officers  consist  of  a  Chairman,  generally  called  the  Com- 
missioner, and  a  Secretary.  The  salary  paid  to  a  Commissioner  will 
in  most  cases  be  higher  than  the  average  salary  of  the  railroad  repre- 
sentatives who  attend  the  meetings;  from  which  you  will  understand 
that  in  a  well-organized  traffic  association  the  Commissioner  is  some- 
thing more  than  a  mere  presiding  officer.  In  fact,  he  is  supposed  to 
be  an  expert  on  traffic  matters,  and  expected  to  thoroughly  guide  and 
control  the  actions  of  the  individual  roads,  although  you  will  under- 
stand that  such  efforts  on  his  part  are  frequently  questioned  by  the 
membership,  and  oftentimes  the  cause  of  strenuous  debate  and  ani- 
mated discussion. 

"The  exact  procedure  in  each  of  these  organizations  differs,  on 
account  principally  of  the  difference  in  size  of  the  various  associations. 


RELATIONS  WITH  SELLERS  223 

The  Trunk  Line,  for  instance,  consists  of  but  seven  members,  whereas 
the  Central  Freight  or  Passenger  Associations  have  a  membership  of 
"forty  to  fifty  railroads.  The  general  procedure,  however,  is  the  same 
in  all  of  these  organizations,  whether  it  be  a  freight  organization  or  a 
passenger  organization,  and  is  about  as  follows: 

"An  interested  member  introduces  a  subject  for  discussion.  This 
may  be  a  change  in  an  existing  rate,  or  it  may  refer  to  a  change  in 
classification  of  a  certain  article,  which  amounts  to  the  same  thing  as 
a  change  in  the  rate,  for  the  reason  that  transferring  an  article  from 
one  class  to  another  class  either  lowers  or  raises  the  rate,  according 
to  the  class  in  which  the  transfer  is  made. 

"The  question  raised  may  also  refer  to  some  change  in  existing 
rules  under  which  traffic  is  handled.  It  may  refer  to  loading,  demur- 
rage, minimum  carload  weight,  or  any  one  of  the  thousand  and  one 
questions  of  mutual  interest  which  are  constantly  arising  in  the  rail- 
road business. 

"For  the  purpose  of  bringing  the  subject  before  the  meeting,  a 
resolution  is  introduced,  which  is  generally  worded:  'Recommended, 
that  so  and  so  be  done.'  If  the  resolution  is  seconded,  it  is  then  be- 
fore the  meeting  for  discussion.  If  the  association  is  a  large  one,  the 
resolution  will,  in  most  cases,  be  referred  to  one  of  the  sub-committees' 
that  has  this  particular  subject  in  its  charge,  which  committee  will 
return  the  resolution  to  the  main  body,  with  its  recommendation. 
After  the  subject  is  thoroughly  discussed  by  the  organization,  it  is 
then  put  upon  passage,  and  if  carried  by  the  majority  vote,  is  declared 
by  the  chairman  to  be  the  recommendation  of  the  body,  and  so  appears 
in  their  printed  proceedings. 

"No  member  is  bound  by  any  agreement  to  make  effective  the 
recommendations  so  adopted,  but  he  is  obligated  to  notify  his  associates 
if  he  decides  not  to  adopt  the  recommendation.  Such  notices  are  very 
frequent,  and  follow  immediately  after  the  declaration  by  the  Commis- 
sioner that  the  resolution  has  been  adopted,  although  they  may  be 
given  by  mail  later  on;  in  fact,  at  any  time. 

"These  methods  secure  uniformity  of  action  on  the  part  of  all  rail- 
roads occupying  the  same  territory,  because  either  the  recommendations 
are  adopted  by  all  lines,  or  one  line  serves  an  individual  notice  of 
what  it  proposes  to  do,  and  all  the  other  lines  are  compelled,  of  course, 
to  take  the  same  action  as  the  individual. 

"Stenographic  reports  are  taken  of  all  proceedings,  and  while  the 
debates  are  not  published,  the  proceedings  of  each  meeting  are  issued 
in  printed  form  at  great  length,  and  such  proceedings,  when  published, 
become  public  documents,  and,  while  not  given  open  circulation,  access 
can  be  had  to  them  by  interested  parties,  through  some  means,  at  all 
times.  They  are,  I  think,  in  every  instance,  filed  with  the  Interstate 
Commerce  Commission. 

"Beyond  such  steps  as  might  be  taken  to  exclude  curiosity  seekers, 
there  is  no  secrecy  about  these  meetings,  their  actions,  their  member- 
ship, or  their  officers.  Interested  parties  frequently  appear  before  these 
bodies,  the  passenger  associations  particularly,  to  urge  the  adoption  of 
some  suggestion  which  they  desire  to  have  made  effective.    Officers  of 


224  THE  NEW  COMPETITION 

the  commercial  travelers*  organizations  have  frequently  appeared  before 
the  passenger  associations  to  urge  the  adoption  of  certain  rules  or 
regulations,  regarding  mileage  tickets,  baggage  rules,  stop-overs,  etc. 

"These  associations  meet,  as  a  rule,  monthly,  although  some  of 
them  have  bi-monthly  meetings,  and  special  meetings  are  of  frequent, 
in  fact,  almost  continuous  occurrence.  Meetings  are  attended  by  the 
chief  traffic  official  of  each  railroad  company,  or,  in  his  absence,  by  the 
next  official  in  authority,  or  some  officer  designated  to  act. 

"These  traffic  associations  are  as  old  as  the  railroad  business,  and 
came  into  existence  with  the  construction  of  railroads,  and  have  en- 
dured ever  since.  Some  of  them  are  now  over  fifty  years  old,  but  the 
practices,  the  constitution,  rules  and  by-laws  have  been  continuously 
modified  from  time  to  time,  principally  to  meet  changes  in  federal  or 
state  laws. 

"These  associations  were  originally  founded  on  the  basis  of  abso- 
lute agreements  between  the  contracting  parties  to  do  or  not  to  do 
specified  things.  Heavy  money  fines  were  provided  for  in  case  of  vio- 
lation, and  in  those  days  most  of  a  railroad  man's  time  was  spent  'test- 
ing* the  other  fellov/'s  freight  and  ticket  offices,  to  see  if  he  could  not 
find  him  violating  his  agreements,  and  when  such  cases  were  discov- 
ered, which  was  continuously,  set  trials  were  had,  evidence  was  intro- 
duced, and  the  Commissioner,  as  judge,  imposed  the  penalties. 

"All  of  this  was  abolished  with  the  passage  of  the  Interstate  Com- 
merce Law  in  1887,  and  other  radical  changes  were  made  in  the  consti- 
tution and  by-laws  of  these  organizations,  following  the  decision  of  the 
Supreme  Court  in  the  Trans-Missouri  case.  Further  changes  were 
made  with  the  passage  of  the  Hepburn  law,  the  result  being  that  in 
the  minds  of  the  railroad  men  and  their  legal  advisers,  these  associa- 
tions follow  the  law,  and  only  through  these  organizations  can  all  the 
requirements  of  the  law  be  observed,  and  the  railroad  business  handled 
in  the  stable  manner  which  is  necessary  to  permit  proper  development 
of  the  resources  of  the  country." 

In  U.  S.  vs.  Trans-Missouri  Freight  Association  (1896),  166  U.  S. 
290,  and  in  U.  S.  vs.  Joint  Traffic  Association  (1898),  171  U.  S.  505, 
the  Supreme  Court  held  traffic  associations  organized  to  regulate  rates 
contrary  to  the  Sherman  law.  Notwithstanding  these  decisions,  the 
associations  exist,  and  operate,  in  effect,  the  same  as  before.  Why? 
Because  they  are  absolutely  necessary  to  the  conduct  of  railroad  busi- 
ness and  the  Interstate  Commerce  Law  could  not  be  administered  with' 
out  them. 


CHAPTER    XIV 
RELATIONS   WITH   THE   PUBLIC 


What  the  public  does  not  understand  it  distrusts;  what 
it  distrusts  it  condemns.     These  reactions  are  instinctive. 

Heretofore,  combinations  in  the  world  of  commerce,  in- 
dustry and  transportation  have  been  primarily  selfish  in 
their  objects  and  secret  in  their  methods. 

They  have  met  behind  closed  doors  and  clothed  their 
deliberations  with  mystery. 

What  more  natural  than  that  the  outsider — the  public 
— should  feel  that  something  is  being  done  to  his  disad- 
vantage ? 

The  press  is  a  power — it  is  the  ears,  the  eyes  and  the 
tongue  of  the  public.  What  it  is  not  permitted  to  hear  and 
see  it  will  talk  about;  nothing  can  silence  this  active  and 
often  reckless  tongue;  the  best  way  to  gain  its  favor  is  to 
give  it  ample  opportunity  to  learn  the  truth. 

Nine-tenths  of  the  things  that  are  now  done  in  secrecy 
in  commerce,  industry,  and  transportation,  could  be  done, 
and  done  better,  in  the  open,  in  cooperation  with  all  parties 
interested  and  with  reporters  present. 

More  than  nine-tenths  of  the  things  now  done  behind 
closed  doors  are  known  anyway  very  quickly  to  the  parties 
interested,  and  sooner  or  later  to  the  press  and  public,  but 
everybody  is  alienated  by  the  methods  adopted. 

If  railroad  men  meet  to  discuss  rates,  why  should  they 
not  invite  shippers?     If  steel  men  meet  to  discuss  prices, 

225 


226  THE  NEW  COMPETITION 

why  should  they  not  open  the  doors  to  customers  and  the 
press  ? 

If  they  do  not,  they  are  charged  with  doing  and  saying 
the  things  they  should  not,  and  no  one  will  accept  their 
word  to  the  contrary. 

If  they  try  to  fix  prices,  the  trade  knows  it  before  the 
day  is  over,  and  the  papers  the  next  morning  contain  more 
or  less  exaggerated  accounts  of  what  transpired.  The 
atmosphere  of  secrecy  serves  only  as  a  red  flag  in  the  face 
of — the  public. 

There  is  no  reason  why  men  should  not  discuss  their 
own  affairs  with  as  much  secrecy  as  they  please,  but  when 
they  meet  to  discuss  and  settle  matters  that  concern  others, 
it  goes  without  saying  the  others  should  have  the  oppor- 
tunity of  being  represented  if  they  choose. 

Every  man  who  has  ever  attended  a  meeting  called  to 
help  conditions  in  a  trade  knows  the  influence  the  presence 
of  an  outsider  has  upon  both  discussions  and  actions.  If 
no  outsider  is  present,  propositions  of  the  most  arbitrary 
and  oppressive  character  are  invariably  made,  and  often 
adopted;  there  is  no  restraint,  and  the  association  usually 
does  things  it  afterwards  regrets. 

With  customers,  or  even  neutral  parties,  present,  it  is 
impossible  to  speak  with  only  one  side  in  mind,  and  the 
framing  of  every  resolution  will  be  influenced,  every  action 
taken  will  be  fairer.  Manufacturers  who  meet  to  debate 
prices  are  fortunate  if  they  have  with  them  a  few  keen 
customers  and  observers;  they  are  more  apt  to  do  the  fair 
thing  and  the  right  thing — which  means  in  the  end  the 
more  effective  thing. 

II 

Whatever  may  be  said  regarding  old-line  combinations, 
the  relation  of  the  open-price  association  to  the  public  is  of 


RELATIONS  WITH  THE  PUBLIC       227 

vital  concern,  for  its  usefulness  depends  upon  the  sympathy 
and  favor  of  the  public. 

The  theory  of  the  old  competition  is  that  no  one  class 
or  individual  can  profit  except  at  the  expense  of  some 
other. 

The  theory  of  the  new  competition  is  that  no  class  can 
proUt  in  the  long  run  except  as  others  prosper. 

Under  the  theory  of  the  old  it  was  inevitable  that  each 
class  should  organize  within  itself  to  gain  all  it  could  at 
the  expense  of  the  community. 

Under  the  theory  of  the  new,  each  class  will  organize  in 
cooperation  with  other  classes  to  increase  the  prosperity  of 
the  entire  community  and  secure  only  its  fair  share  of  such 
increased  prosperity. 

All  of  which  means  that  the  open-price  association  can 
be  effective  only  in  so  far  as  it  advances  not  only  the  in- 
terests of  the  trade,  but  the  more  general  interest  of  the 
public. 

Ill 

Why  does  public  opinion  favor  labor  unions  and 
farmers'  unions  and  oppose  unions  of  manufacturers? 

Each  reader  will  have  his  own  answer,  but  when  sifted 
to  the  bottom  one  very  good  reason  will  be  found  in  the 
tactless  manner  with  which  manufacturers  have  run  their 
combinations. 

If  dealers  and  manufacturers  endeavor  to  advance  prices 
they  are  in  direct  conflict  with  customers — ^the  public — and 
to  avoid  trouble  they  must  permit  those  to  whom  they  sell 
to  have  some  voice  in  the  discussion. 

If  in  certain  industries  it  is  better  prices  should  be  fixed 
for  given  periods  as  a  rational  economic  step,  it  can  only 
be  done  with  the  full  understanding  and  approval  of  cus- 
tomers; if  prices  are  to  be  left  to  fluctuate  within  normal 
limits  under  the  operation  of  the  open-price  policy,  the  pub- 


228  THE  NEW  COMPETITION 

lie  should  understand  why  they  fluctuate  and  why  it  is  bet- 
ter they  should. 

When  all  these  things  are  discussed  in  a  spirit  of  frank- 
ness the  public  will  be  quite  as  much  in  favor  of  fixed  prices 
for  fixed  periods  as  it  now  is  in  favor  of  cut-throat  com- 
petition; it  will  be  as  quick  to  see  the  economic  advantage 
of  stable  prices  in  certain  industries  as  it  is  to  admit  the 
union  principle  of  stable  wages  and  limited  hours  of  em- 
ployment. 

IV 

The  organization  of  an  open-price  association  has  noth- 
ing to  do  with  fixing  prices  in  the  old  sense  of  the  term; 
its  first  and  principal  object  is  to  bring  prices  and  competi- 
tion out  in  the  open ;  whether  it  is  better  for  the  community 
that  prices  should  be  fixed  and  controlled  in  certain  indus- 
tries, very  much  as  wages  are,  is  an  economic  proposition 
that  may  be  discussed  profitably  by  everyone  interested 
after  the  open-price  association  has  done  its  first  work  of 
making  known  the  conditions  of  the  problem. 

Up  to  the  point  of  trying  to  regulate  prices  the  mem- 
bers of  an  open-price  association  are  well  within  their  indi- 
vidual rights ;  they  can  dig  and  delve  until  every  practice  is 
brought  to  the  surface ;  but  when  they  endeavor  to  formu- 
late a  broad  price  policy,  a  policy  that  will  lessen  the  waste 
of  the  old  competition,  they  are  on  ground  where  they 
must  proceed  with  caution,  and  be  sure  of  the  sympathetic 
support  of  the  public,  and  the  only  way  to  be  sure  of  that 
sympathy  is  to  take  their  customers  and  the  public  into  their 
confidence. 

V 

Frequent  references  have  been  made  to  the  practice  of 
the  Government  in  purchasing  supplies  and  letting  contracts 
— calling  for  bids  and  letting  to  the  lowest  without  discus- 
sion and  without  revisions. 


RELATIONS  WITH  THE  PUBLIC       229 

The  practice  is  fair  but  not  right,  since  it  often  results 
in  getting  both  supplies  and  work  for  less  than  cost. 

One  of  the  fundamental  propositions  of  the  new  com- 
petition is  that,  in  so  far  as  human  sagacity  can  prevent, 
no  man  shall  be  permitted  to  sell  labor  or  material  below 
cost. 

One  of  the  first  steps  of  the  new  economy  will  be  to  de- 
vise ways  and  means  for  ascertaining  costs  of  both  labor 
and  goods,  and  men  who  buy  to  sell  either  will  be  taught 
to  know  their  costs  and  make  their  prices  accordingly. 

If  it  is  a  fundamentally  sound  proposition  that  no  man 
should  be  permitted  to  sell  below  cost,  then  it  follows  that 
the  Government — the  community — of  all  parties  should 
be  the  last  to  adopt  a  system  of  buying  and  contracting  that 
is  a  direct  inducement  to  men  in  need  of  work  to  bid  be- 
low cost. 

The  Government  cannot  afford  to  appropriate  either 
labor  or  property  by  paying  less  than  it  costs. 

The  Government  method  is  fair  in  comparison  with  the 
vicious  practices  of  most  private  buyers,  but  it  is  not  right 
because  it  encourages  a  man  to  make  a  losing  contract  and 
then  holds  him  to  it. 

Between  the  young  millionaire  who  boasted  that  the 
tiled  roof  of  his  house  cost  the  contractor  three  thousand 
dollars  more  than  was  paid  for  it  and  the  Government  who 
compels  a  poor  devil  of  a  contractor  to  finish  a  job  that 
costs  him  three  thousand  dollars  more  than  he  gets  for  it, 
there  is  not  the  slightest  difference — both  get  and  enjoy 
something  that  belongs  to  some  one  else. 

Under  existing  conditions  it  is  not  uncommon  to  hear 
and  see  in  print,  boasts  by  Government,  State  and  city  of- 
ficials how  they  closed  contracts  so  low  the  contractors  lost 
money,  and  the  public  is  so  blind  to  what  is  right  in  buying 
that  it  unwittingly  applauds  such  bargains. 

In  fact,  the  attitude  of  the  public  is  that  if  any  man 


230  THE  NEW  COMPETITION 

makes  money  on  a  Government  contract  "there  must  be 
something  wrong  somewhere." 

VI 

All  this  must  change.  It  should  be  the  duty  of  the 
Government — federal,  State,  municipal — of  every  public 
body — to  make  sure  of  two  things  in  all  its  purchases: 

1.  Good  work  and  good  material,  at 

2.  Fair  prices. 

Inspection  of  prices  is  just  as  important  as  inspection 
of  work  and  material.  As  it  is,  the  Government  inspects 
to  make  sure  work  and  material  are  up  to  standard;  it 
makes  no  inspection  to  see  that  prices  are  up  to  standard; 
on  the  contrary,  the  only  effort  is  to  depress  prices,  which 
is  as  rational  as  a  like  effort  to  depress  quality  of  work 
and  material. 

It  is  to  the  credit  of  many  private  buyers  that  they 
refuse  to  buy  below  cost,  that  they  will  not  permit  con- 
tractors to  do  work  at  less  than  cost — this  is  true  of  far 
more  men  than  the  public  knows.  No  right-minded  man 
cares  to  accept  a  present  from  a  man  he  does  not  know 
and  who  cannot  afford  to  give  it;  to  accept  work  or  ma- 
terial at  less  than  cost  amounts  to  the  same  thing — only 
worse. 

That  contractors  try  to  and  do  get  even  on  public  work 
by  poor  work,  "extras"  and  other  fraudulent  devices,  is  so 
notorious  it  is  expected;  every  public  contract  has  its 
shadow  of  evasion  and  dishonesty.  This  is  so  true  that 
many  men  and  companies  who  make  a  business  of  Govern- 
ment contracts  have  a  doubtful  reputation;  there  is  always 
the  tacit  assumption  that  their  contracts  are  due  to  a  "pull" 
and  their  profits,  despite  low  bids,  depend  upon  practices 
that  will  not  bear  the  light. 

It  goe^  without  saying  no  public  commission  can  reform 


RELATIONS  WITH  THE  PUBLIC        231 

this  system  by  arbitrarily  rejecting  bids  it  thinks  below 
cost  and  letting  work  to  the  bidder  whose  bid  it  thinks  is 
fair ;  that  would  lead  to  conditions  still  worse.  It  may  even 
be  true  that  all  the  Government  can  do  is  accept  the  lowest 
bid,  but  it  should  not  accept  any  offer  that  appears  to  be  be- 
low cost  without  calling  the  attention  of  the  bidder  to  the 
figures  and  securing  from  him  the  assurance — with,  if  nec- 
essary, some  demonstration — that  he  can  furnish  the  goods 
or  do  the  work  at  the  price  and  make  money. 

If  he  cannot  give  the  assurance,  or  make  the  demon- 
stration, his  offer  should  be  rejected. 

And  it  should  be  open  to  every  higher  bidder  to  chal- 
lenge the  lowest  bidder's  ability  to  do  the  work  required  at 
the  price  and  get  out  even. 

The  practical  difficulties  in  the  way  of  the  Government's 
taking  the  initiative  are  obvious,  but  the  work  can  be  done, 
and  done  effectually,  by  open  price  associations,  if  the  law 
would  permit.  Such  associations  would  have  no  trouble 
whatsoever  in  checking  up  bids  and  disclosing  those  that 
did  not  cover  cost  plus  a  fair  profit. 


CHAPTER   XV 
VANISHING   INDUSTRIES 

I 

When  the  expert  is  called  in  to  see  what,  if  anything, 
can  be  done  for  a  given  industry  the  first  inquiry  should  be 
whether  the  industry  is  a  diminishing  or  a  growing  indus- 
try. 

If  it  is  diminishing  or  vanishing  the  case  is  desperate, 
little  can  be  done ;  it  is  not  a  question  of  bringing  prosperity 
to  all,  or  even  of  the  survival  of  the  strongest,  the  problem 
is  how  to  make  death  easy,  how  to  gradually  close  shop 
after  shop,  plant  after  plant,  with  the  least  possible  loss  to 
owners  and  community,  or  how  to  transform  plants  and 
shops  into  factories  for  other  products. 

When  the  question  is  put  to  a  group  of  men,  "Is  your 
industry  going  forward  or  backward,  what  is  the  demand 
to-day  for  your  products  as  compared  with  a  few  years 
ago?"  it  is  disheartening  when  they  are  obliged  to  reply, 
"Ten  or  twenty  years  will  see  our  finish,"  disheartening  not 
so  much  on  their  account,  because  the  good  business  man 
discounts  the  inevitable,  lays  up  against  what  cannot  be 
helped,  but  on  account  of  the  labor  and  localities  involved. 
Sections  of  cities,  small  towns,  entire  localities,  may  be  af- 
fected, even  depopulated  by  the  closing  of  factories,  the  ex- 
haustion of  mines,  and  it  is  not  so  easy  for  labor  and  lo- 
calities to  discount  the  future — they  have  neither  the  means 
nor  the  foresight. 

232 


VANISHING  INDUSTRIES  233 

True,  of  late  years  towns  and  smaller  cities  are  making 
systematic  efforts  to  diversify  their  industries  so  that  they 
will  not  be  wholly  dependent  upon  the  prosperity  of  some 
one  large  enterprise.  Still  there  are  cities  and  towns  every- 
where which  depend  more  or  less  upon  one  or  more  large 
companies  engaged  in  the  same  line ;  if  they  shut  down  the 
entire  community  feels  the  loss,  if  there  is  a  strike  all  the 
people  suffer. 

The  cotton  and  the  woolen,  and  the  boot  and  shoe  mak- 
ing towns  of  New  England  are  illustrations ;  as  are  also  the 
wagon  making,  implement  making,  automobile  making 
towns  farther  west,  and  the  mining  towns  of  the  far  west. 

It  is  bad  enough  when  these  industries  that  are  grow- 
ing shut  down  temporarily,  but  the  outlook  is  worse  when 
it  is  apparent  to  all  interested  that  an  industry  is  slowly  dis- 
appearing. 


II 


It  is  needless  to  say  that  a  given  industry  may  be  a  grow- 
ing one,  and  yet  factories  in  particular  localities  be  in  a 
position,  either  with  relation  to  the  supply  of  raw  material 
or  sale  of  outputs,  where  they  cannot  go  on;  this  happens 
constantly;  the  condition  is  akin  to  that  of  a  store  that  has 
to  close  or  move  on  account  of  change  in  neighborhood, 
or  effective  competition  of  establishments  more  centrally 
located.  This  condition  may  be  helped  by  the  expert;  by 
wise  cooperation  life  may  be  prolonged  or  death  rendered 
painless. 

But  where  the  entire  industry  is  a  vanishing  one  the  sit- 
uation is  difficult  indeed. 

Given  a  group  of  men — say  ten — representing  all  the 
companies  engaged  in  a  particular  industry,  careful  inquiry 
will  disclose  one  of  the  following  conditions : 


234  THE  NEW  COMPETITION 

A.  A  vigorous  youthful  industry  in  which,  all  the 
plants  are  growing  but  in  widely  varying  degrees. 

B.  An  established  growing  industry  in  which  most  of 
the  plants  are  expanding  and  fighting  vigorously,  some  sta- 
tionary and  struggling  to  make  fair  earnings,  others  losing 
and  on  the  edge  of  bankruptcy — this  is  the  normal  condi- 
tion of  three-fourths  of  the  industries  of  the  country. 

C.  A  diminishing  industry  in  which  a  few  plants  are 
fairly  prosperous,  others  barely  living,  and  many  in  des- 
perate condition. 

D.  A  vanishing  industry  the  end  of  which  is  in  sight, 
no  one  making  money,  all  closing  one  by  one,  with  as  little 
loss  as  possible. 

Each  class  presents  its  own  problem — economic  and 
ethical. 

Those  of  the  first  and  second  are  the  problems  of  pros- 
perity, those  of  the  second  and  third  the  problems  of  ad- 
versity. The  problems  of  prosperity  are  mainly  economic 
— ^material;  those  of  adversity  are  mainly  ethical — human. 

Not  that  prosperity  does  not  have  its  great  human  prob- 
lems— it  does,  and  they  are  too  litde  considered — but  the 
point  is  that  when  men  are  prosperous,  well  fed,  well 
clothed,  well  housed  they  give  little  thought  to  anything  be- 
yond their  immediate  happiness ;  it  is  when  adversity  comes, 
when  the  pressure  of  life  is  felt,  when  work  is  not  so  easy 
to  find  and  wages  are  not  so  high,  when  profits  fall  off  and 
bankruptcy  stares  in  the  face,  it  is  then  the  profoundest 
problems  of  existence  demand  solution,  big,  human  de- 
mands that  must  be  answered. 

Ill 

Natural  gas  is  struck  in  a  prosperous  farming  section; 
the  entire  locality  is  transformed  into  manufacturing  cen- 
ters; the  farmers  get  big  prices  for  their  farms  and  are 


VANISHING  INDUSTRIES  235 

happy;  the  various  industries  prosper  on  cheap  fuel;  for 
the  time  being  everybody  is  so  absorbed  in  making  money 
that  no  one  takes  thought  of  the  morrow,  of  the  day  when 
the  flow  of  gas  will  cease  and  all  the  industries  be  left  high 
and  dry  for  the  want  of  the  cheap  fuel  that  is  their  one  ad- 
vantage. 

The  more  far-sighted  among  the  owners  provide  against 
the  day  of  shutting  down  by  laying  up  money,  by  accumulat- 
ing what  is,  in  reality,  a  sinking  fund  that  takes  care  of  the 
cost  of  their  plants  when  they  become  worthless.  But  the 
men  and  the  communities  dependent  upon  the  industries, 
they  have  no  sinking  fund,  no  saved-up  earnings  to  fall  back 
upon;  the  end  of  the  gas  supply  means  ruin  to  them,  very 
much  the  same  sort  of  ruin  an  earthquake  or  a  vast  con- 
flagration would  mean,  only  prolonged. 

During  the  growth  of  these  new  industrial  centers  the 
problems  were  mainly  economic,  largely  questions  of  get- 
ting the  quickest  and  largest  returns  from  the  natural  re- 
sources— in  short,  of  making  money. 

As  the  supply  of  gas  rapidly,  perhaps  suddenly,  dimin- 
ishes, and  plant  after  plant  is  obliged  to  suspend,  the  human 
problem  becomes  acute. 

In  press  and  print  stress  is  invariably  laid  upon  the 
great  loss  to  capital,  etc.,  etc. — the  phrases  are  familiar;  in 
reality  the  one  feature  of  the  situation  worth  considering 
is  the  human  and  sociological,  the  effect  upon  the  individ- 
ual, the  family,  the  community  of  the  shifting  of  industrial 
activity  to  some  distant  locality  where  fuel  can  be  had. 
The  individual  may  follow,  but  the  family  cannot  go  far, 
while  the  community,  disordered  and  disintegrated,  is  left 
behind  to  recover  as  best  it  can. 

"But  these  things  can't  be  helped,"  the  puzzled  reader 
exclaims. 

Perhaps  not,  but  if  not — that  is  a  confession  of  weak- 
ness. 


236  THE  NEW  COMPETITION 

Given  economic  conditions  productive  of  poverty  and 
misery,  only  the  thorough-going  pessimist  has  the  right  to 
say  they  cannot  be  helped,  and — whether  we  realize  it  or 
not — most  of  us  are  optimists,  our  lives  are  ordered  upon 
the  conviction  that  things  which  are  wrong  not  only  can  be, 
but  will  be  helped. 

To  return  to  the  question  in  cooperation  presented  by 
the  four  classes  of  industries. 


IV 


With  group  A  the  problem  is  to  devise  a  plan  of  co- 
operation that  will  eliminate  the  waste  of  competition  and 
assure  the  plants  less  advantageously  situated  the  work  they 
can  do  economically  and  that  they  are  normally  entitled  to 
do  by  reason  of  their  location.  The  problem  is  not  how  to 
most  speedily  dispose  of  the  weaker  to  the  end  that  the 
larger — and,  logically,  perhaps  one  large  one — shall  control 
the  trade;  that  might  result  for  a  time  in  a  fractional  sav- 
ing on  each  unit  of  product,  but  in  the  end  it  would  mean 
a  very  great  loss  to  the  community  and  disaster  to  many 
localities. 

With  group  B  the  problem  is  more  difficult.  Many  of 
the  losing  plants  may  have  to  go,  it  may  even  be  difficult  to 
preserve  all  those  that  are  neither  losing  nor  making,  but 
with  every  man  in  the  business  before  him  the  expert  will 
think  long  and  seriously  before  he  says  to  this  man  or  that 
man,  "I  can  do  nothing  for  you  or  the  town  the  prosperity 
of  which  depends  upon  the  keeping  open  of  your  factory.'* 

Unsympathetic  competitors,  heartless  theorists  and 
economists  may  say,  "What's  the  use  of  trying  to  keep  him 
alive?    He  can't  make  any  money  where  he  is  located." 

It  may  be  true  that,  under  the  relentless  conditions  of 
the   old  competition,  he  can  make   no  money  and  must, 


VANISHING  INDUSTRIES  237 

sooner  or  later,  go  bankrupt,  but  there  may  be  a  bare  pos- 
sibility that,  under  the  fairer  conditions  of  the  new  com- 
petition, some  form  of  cooperation  can  be  devised  that  will 
give  a  losing  company  sufficient  trade  to  insure  its  existence 
and  the  moderate  prosperity  of  all  the  people  dependent 
upon  it.  This  cannot  be  done  in  all  cases,  but  it  can  be 
done  in  some  and  without  disadvantage  to  the  consumer, 
and  wherever  it  can  be  done  by  the  exercise  of  human  in- 
telligence and  human  cooperation  does  it  require  any  argu- 
ment to  demonstrate  it  should  be  done,  rather  than  let  the 
brute  forces  of  "cut-throat"  competition  work  unrestrained? 


In  group  C  we  come  to  a  diminishing  industry.  If  it 
is  a  question  of  raw  material — as  for  instance,  in  certain 
branches  of  the  lumber  business — those  who  control  timber 
will  survive,  making  perhaps  large  profits  until  their  tim- 
ber is  exhausted;  those  that  have  no  sources  of  raw  ma- 
terial must  close.  It  is  difficult  to  devise  a  form  of  coopera- 
tion that  will  help  this  situation.  So  long  as  the  law  recog- 
nizes the  right  of  individuals  to  own  or  control  natural  re- 
sources the  man  who  is  dependent  upon  such  resources  and 
owns  none  is  in  a  position  of  hopeless  inferiority  to  one  who 
does.  The  one  obvious  step  is  the  removal  of  every  tariff 
restriction,  every  unfair  transportation  obstacle,  every  let 
and  hindrance  to  access  to  raw  material  the  world  over ;  the 
law  can  and  should  do  at  least  that  much  for  factories  and 
localities  which,  through  no  fault  of  their  own,  face  certain 
diminution  of  business. 

If  the  falling  off  in  the  industry  is  due  to  a  falling  off 
in  demand  for  the  product  a  very  different  situation  is  pre- 
sented. 

With  a  decreasing  supply  of  raw  material  prices  may  ad- 


238  THE  NEW  COMPETITION 

vance  to  very  high  levels,  all  the  higher  because  factory  after 
factory  is  obliged  to  shut  down.  But  with  a  falling  off  in 
demand  prices  steadily  fall  and  plants  close  in  the  order  of 
cost  of  production — those  where  costs  are  highest,  all  other 
things  equal,  closing  first. 

Here  would  seem  to  be  a  group  wherein  the  law  of 
"survival  of  the  fittest"  would  have  to  be  allowed  to  take 
its  course. 

"How  can  anything  be  done?"  the  academic  economist 
asks. 

Possibly  nothing  under  existing  laws  and  social  institu- 
tions, but  look  at  the  situation  without  prejudice  or  precon- 
ceived notions  regarding  the  sacred  character  of  free  and 
unfettered  competition. 

Given  ten  plants  engaged  in  a  particular  industry,  em- 
ploying, say,  ten  thousand  men  upon  whom  thrice  ten  thou- 
sand women  and  children  are  dependent;  the  industry  is  a 
diminishing  one;  those  plants  one  by  one  must  close;  is  it 
to  the  interest  of  the  community  that  the  death  struggle 
should  be  so  fierce,  so  vicious,  that  no  one  plant  shall  pros- 
per? or  is  it  better  that  all  should  prosper  so  long  as  they 
can,  then  one  after  another  drop  out  with  a  minimum  of 
loss  to  all  interested  directly  and  indirectly,  and  under  such 
conditions  that  the  survivors  down  to  the  last  shall  continue 
to  enjoy  a  certain  degree  of  prosperity  ? 

With  a  diminishing  or  vanishing  industry  competition  is 
fierce  because  hopeless;  it  is  not  a  fight  for  profits  but  for 
life;  it  is  a  cannibal  feast  wherein  the  strong  slaughter  the 
weak  to  feed  on  their  flesh. 


VI 


What  is  true  of  group  C  is  even  more  apparent  with 
group  D. 


VANISHING  INDUSTRIES  239 

It  is  bad  enough  when  those  engaged  in  an  industry  see 
that  it  is  not  growing,  that  it  is  probably  falling  off;  it  is 
hopeless  when  they  plainly  see  that  it  is  actually  vanishing, 
that  in  five,  ten  or  fifteen  years  it  will  be  no  more. 

The  cause  may  be  actual  disappearance  of  raw  material, 
locally  or  generally;  or  it  may  be  discoveries  or  inventions 
that  take  the  place  of  older  processes.  Electricity  is  playing 
havoc  with  steam,  and  electric  devices  are  supplanting  many 
older  machines  and  tools. 

In  many  cases  factories  are  changed  over  to  meet  the 
new  requirements,  but  in  others  they  cannot  be  and  owners 
face  total  losses;  labor  must  look  ahead  to  periods  of  idle- 
ness and  poverty. 

Under  existing  social  conditions  and  prevailing  eco- 
nomic theories  most  of  these  consequences  cannot  be 
avoided,  but  some  might  be  if  the  law  permitted  and  helped. 

Given  a  situation  such  as  described  the  law  should  not 
only  permit,  but  encourage  men  getting  together  to  face  the 
situation  wisely  and  intelligently. 

A  government  *'by  the  people,  of  the  people  and  for  the 
people"  ought  to  look  out  for  the  people  just  a  little  unless 
the  familiar  phrase  is  bombast;  it  should  make  even  more 
careful  investigations  of  all  industries  and  occupations  than 
it  now  does;  it  should  note  and  publish  the  first  signs  of 
fundamental  changes  in  both  demand  and  supply;  it  should 
give  the  first  warnings  of  impending  trouble. 

In  a  measure  governments  of  the  most  advanced  coun- 
tries do  these  things — not  with  any  large  economic  and  ethi- 
cal outlook,  but  mostly  for  temporary  gain. 

A  wise  government  would  go  farther  and  when  it  de- 
tects signs  of  inevitable  decay  and  dissolution  encourage  the 
coming  together  of  all  interested  so  that  by  cooperation  dis- 
astrous results  may  be  minimized. 

In  this  country  state  and  federal  laws  forbid  cooperation 
the  object  of  which  is  to  restrain  trade,  yet  with  a  vanish- 


240  THE  NEW  COMPETITION 

ing  industry  trade  must  be  controlled  and  regulated  in  such 
a  manner  that  losses  will  be  limited  instead  of  aggravated, 
conditions  ameliorated  instead  of  exasperated. 

If  ten  men  are  adrift  in  a  boat  with  food  and  water  for 
only  a  few  days  they  do  not  fight  and  kill  one  another  and 
in  their  struggles  waste  the  little  store  they  have — they  do 
not  do  that  unless  they  are  madmen.  No,  their  one  thought 
is  to  make  the  food  and  water  last  as  long  as  possible ;  they 
cooperate  to  prolong  the  life  of  each. 

The  biologist  might  say,  "Why  don't  you  strong  fellows 
kill  the  weak?    You  will  have  their  shares  and  live  longer." 

But  they  don't ;  a  force  far  above  the  laws  of  evolution 
stays  all  beastly  impulses. 

Why  should  the  ten  survivors  of  a  shipwrecked  indus- 
try engage  in  a  hand  to  throat  struggle  to  kill  one  another 
when  by  rational  cooperation  the  little  business  there  is  may 
be  made  to  go  around  until  something  else  can  be  done ;  or 
until  by  prudent  management  plant  after  plant  may  be  dis- 
posed of  for  other  uses  on  fairly  favorable  terms? 

All  the  expert  can  say  to  those  men  is,  "Your  situation 
is  desperate,  if  you  continue  competing  for  a  diminishing 
business  your  situation  will  become  more  and  more  desper- 
ate; you  will  simply  slaughter  one  another.  There  is  but 
one  thing  you  can  do,  get  together,  face  the  situation  as  a 
unit,  combine  all  your  sources  of  knowledge,  exchange  all 
information  freely  so  that  each  may  know  all  there  is  to 
know  about  what  the  future  has  in  store,  then  shape  your 
course  accordingly. 

"The  law  ought  to  permit  your  acting  as  a  unit  as  re- 
gards both  producing  and  selling,  but  it  does  not. 

"The  law  ought  to  help  you  save  what  you  can  out  of  the 
wreck  of  your  industry,  but  it  does  not. 

"The  attitude  of  the  law  is  that  of  the  biologist — 'Kill 
the  weak,  you  strong  ones — and  then  kill  each  other,'  ha !" 


VANISHING  INDUSTRIES  241 


VII 


Meanwhile  these  diminishing  and  vanishing  industries 
can  do  something  to  help  themselves  in  open-price  associa- 
tions— not  much  but  something. 

It  will  help  for  each  to  know  what  the  others  are  doing, 
both  in  the  way  of  business  and  prices.  Losses  may  be  les- 
sened to  some  extent.  Friendly  association  will  develop  a 
"give  and  take"  spirit  that  will  modify  some  of  the  more 
vicious  features  of  competition. 

At  the  same  time  it  must  be  confessed  the  outlook  will 
be  dismal  at  best ;  without  such  firm  cooperation  as  the  law 
does  not  now  allow,  competition  cannot  be  otherwise  than 
disastrous.  Men  who  must  have  business  to  live  will  bid  to 
get  it,  considerations  of  cost  will  not  deter  them,  much 
less  considerations  for  competitors — nothing  will  restrain 
them. 

Association  will  yield  this  one  advantage,  where  a  man 
knows  the  condition  of  his  competitors  and  the  extent  each 
will  go  in  a  desperate  fight  for  business  he  will  be  in  a  posi- 
tion to  keep  out  of  the  fiercer  competition,  to  exercise  some 
judgment,  and  he  will  realize  the  inevitable  all  the  sooner, 
he  will  realize  the  futility  of  hanging  on  until  all  his  money 
is  lost. 

The  isolated  manufacturer  is  in  a  position  of  serious 
disadvantage,  he  seldom  meets  the  men  who  keep  track  of 
what*  is  going  on  and  often  he  clings  to  methods  either  ac- 
tually out  of  date,  or  that  are  about  to  be  superseded  by  im- 
proved processes;  he  is  at  the  mercy  of  all  his  competitors 
who  are  better  informed. 

As  a  center  for  information,  a  place  for  exchange  of 
views,  the  association  has  a  commercial  as  well  as  a  social 
value — it  means  a  saving  of  money  to  all  who  belong. 


242  THE  NEW  COMPETITION 

In  these  and  many  other  ways  the  open-price  association 
with  its  atmosphere  of  frankness  and  cooperation  can  help 
even  diminishing  and  vanishing  industries,  but  by  no  means 
to  the  extent  it  helps  growing. 


CHAPTER  XVI 
WHAT   IS   A   FAIR   PRICE? 

I 

What  is  a  fair  price? 

"Cost  plus  a  reasonable  profit,"  the  seller  will  answer. 

But  the  average  buyer  will  quickly  reply,  *T  do  not  care 
anything  about  your  cost  or  your  profit,  the  only  price  that 
interests  me  is  the  market  price — ^the  price  I  have  to  pay." 

"But,"  the  seller  urges,  "the  market  price  may  be  either 
far  above  or  far  below  a  fair  price,  it  may  yield  me  an  ex- 
orbitant profit,  or  it  may  mean  a  disastrous  loss." 

"I  can't  help  that." 

"Yes,  you  can  to  some  extent;  if  buyers  will  only  co- 
operate with  sellers  to  control  so  far  as  possible  the  violent 
fluctuations  that  are  bad  for  both." 

And  the  practical  question  is,  to  what  extent  can  that 
be  done? 


H 


A  great  many  writers  have  dealt  with  the  subject  of 
price,  but  all  that  has  been  written  on  the  theoretical  side 
since  the  days  of  Adam  Smith  has  been  but  little  more  than 
refinements  upon  the  conclusions  reached  by  him  in  Book 
I  of  his  famous  work. 

Natural  Price  and  Cost — "There  is  in  every  society  or 
neigliborhood  an  ordinary  or  averagie  riate,  h&da.  bi  wages 

243 


244  THE  NEW  COMPETITION      . 

and  profit  in  every  department.  *  *  *  There  is  likewise 
in  every  society  or  neighborhood  an  ordinary  or  average 
rate  of  rent.  *  *  *  These  ordinary  or  average  rates  may 
be  called  the  natural  rates  of  wages,  profit  and  rent,  at  the 
time  and  place  in  which  they  may  commonly  prevail. 

"When  the  price  of  any  commodity  is  neither  more  nor 
less  than  what  is  sufificient  to  pay  the  rent  of  the  land,  the 
wages  of  the  labor,  and  the  profits  of  the  stock  employed 
in  raising,  preparing,  and  bringing  it  to  market,  according 
to  those  natural  rates,  the  commodity  is  then  sold  for  what 
may  be  called  the  natural  price.  The  commodity  is  then  sold 
precisely  for  what  it  is  worth,  or  for  what  it  really  costs  the 
person  who  brought  it  to  market,  for  though  in  common 
language  what  is  called  the  prime  cost  of  any  commodity 
does  not  comprehend  the  profit  of  the  person  who  is  to  sell 
it  again,  yet  if  he  sells  it  at  a  price  which  does  not  allow  him 
the  ordinary  rate  of  profit  in  the  neighborhood,  he  is  evi- 
dently a  loser  by  the  trade;  since  by  employing  his  stock 
(capital)  in  some  other  way  he  might  have  made  that 
profit. 

Market  Price. — *The  actual  price  at  which  any  com- 
modity is  commonly  sold  is  called  the  market  price. 

"The  market  price  of  every  particular  commodity  is 
regulated  by  the  proportion  between  the  quantity  which  is 
actually  brought  to  market,  and  the  demand  of  those  who 
are  willing  to  pay  the  natural  price  of  the  commodity,  or  tlie 
whole  value  of  the  rent,  labor,  and  profit,  which  must  be 
paid  in  order  to  bring  it  thither.  Such  people  may  be  called 
the  effectual  demanders,  and  their  demand  the  effectital  de- 
mand; since  it  may  be  sufBcient  to  effectuate  the  bringing  of 
the  commodity  to  market.  It  is  different  from  the  absolute 
demand.  A  very  poor  man  may  be  said  in  some  sense  to 
have  a  demand  for  a  coach  and  six ;  he  might  like  to  have  it, 
but  his  demand  is  not  an  effectual  demand. 

Supply  and  Demand. — "When  the  supply  of  any  com- 


WHAT  IS  A  FAIR  PRICE?  245 

modity  falls  short  of  the  effectual  demand"  some  will  be 
willing  to  give  more  than  the  natural  price  and  "a  competi- 
tion will  immediately  begin  among  them,  and  the  market 
price  will  rise  more  or  less  above  the  natural  price,  accord- 
ing as  either  the  greatness  of  the  deficiency,  or  the  wealth 
and  wanton  luxury  of  the  competitors,  happens  to  animate 
more  or  less  the  eagerness  of  the  competition. 

"When  the  quantity  brought  to  market  exceeds  the  effec- 
tual demand,  it  cannot  be  all  sold  to  those  who  are  willing 
to  pay  the  whole  value  of  the  rent,  wages  and  profit,  which 
must  be  paid  in  order  to  bring  it  thither.  Some  part  must 
be  sold  to  those  who  are  willing  to  pay  less,  and  the  low 
price  which  they  give  for  it  must  reduce  the  price  of  the 
whole.  The  market  price  will  sink  more  or  less  below  the 
natural  price,  according  as  the  greatness  of  the  excess  in- 
creases more  or  less  the  competition  of  the  sellers,  or  accord- 
ing as  it  happens  to  be  more  or  less  important  to  them  to 
get  immediately  rid  of  the  commodity.  The  same  excess  in 
the  importation  of  perishable,  will  occasion  a  much  greater 
competition  to  get  rid  of,  than  in  that  of  durable  com- 
modities. 

"When  the  quantity  brought  to  market  is  just  sufficient 
to  supply  the  effectual  demand  and  no  more,  the  market 
price  naturally  comes  to  be  either  exactly,  or  as  nearly  as 
can  be  judged  of,  the  same  with  the  natural  price. 

"The  natural  price,  therefore,  is,  as  it  were,  the  central 
price,  to  which  the  prices  of  all  commodities  are  continually 
gravitating.  Different  accidents  may  sometimes  keep  them 
suspended  a  good  deal  above  it,  and  sometimes  force  them 
down  even  somewhat  below  it.  But  whatever  may  be  the 
obstacles  which  hinder  them  from  settling  in  this  center  of 
repose  and  its  continuance,  they  are  eventually  tending  to- 
wards it."^ 

*Book  I,  Chapter  VII.  The  italics  and  the  words  in  parenthesis 
are  the  writer's. 


246  THE  NEW  COMPETITION 


III 


Adam  Smith's  definition  of  a  fair  or  "natural'*  price  is 
as  good  as  any  that  can  be  found  in  so  many  words,  but 
while  the  paragraphs  referred  to  seem  to  lead  to  definite  con- 
clusions because  they  are  precise  in  terms,  careful  analysis 
shows  they  are  little  more  than  graphic  descriptions  of 
what  takes  place  under  the  eyes  of  every  housewife  who 
buys  of  her  grocer.  She  pays  the  price  asked  for  the  things 
she  wants;  whether  that  price  covers  cost  or  not  she  does 
not  know  or  care,  all  she  knows  is  that  if  she  sells  eggs  she 
receives  what  she  thinks  is  the  highest  market  price,  if  she 
buys  butter  she  pays  what  she  thinks  is  the  lowest  market 
price — she  may  find  out  too  late  that  prices  vary  consider- 
ably in  the  next  street,  or  that  a  neighbor  the  same  day  re- 
ceived more  for  her  eggs  and  paid  less  for  her  butter. 


IV 


The  "Wealth  of  Nations"  was  published  in  1776.  Let 
us  skip  a  century  and  a  quarter  and  see  what,  if  any,  ad- 
vance has  been  made  over  Adam  Smith's  propositions. 

A  recent  writer  ^  sums  up  the  law  of  supply  and  demand 
as  follows: 

"i.  As  the  price  of  an  article  increases  the  quantity  de- 
manded tends  to  diminish  and  the  quantity  oflFered  tends  to 
increase.  There  will  thus  in  ordinary  cases  be  a  certain 
price  which  'clears  the  market'  and  makes  the  two  equal. 

"2.  This  price  will,  theoretically,  be  reached  by  free 
competition.    For  so  long  as  the  supply  is  in  excess  of  the 

*  President  Hadley  of  Yale,  in  the  Dictionary  of  Philosophy  and 
Psychology,  vol.  II,  pp.  623-4.  Compare  also  article  on  Value,  vol. 
XXII,  Encyclopedia  Britannica,  nth  edition. 


WHAT  IS  A  FAIR  PRICE?  247 

demand,  sellers  will  be  in  danger  of  having  unsold  goods 
left  on  their  hands,  and  will  compete  to  bring  prices  down ; 
but  if  the  demand  is  in  excess  of  the  supply,  buyers  will  be 
in  danger  of  having  wants  unsatisfied,  and  thus  competition 
will  force  prices  up,  thus  producing  an  equation  of  supply 
and  demand. 

"3.  The  prices  thus  fixed  tend  to  be  proportional  to  the 
expense  of  producing  the  several  articles  in  the  market.  For 
if  the  market  price  of  one  article  offers  a  higher  rate  of 
profit  than  the  market  price  of  another,  investors  will  grad- 
ually abandon  the  production  of  unprofitable  goods,  and  put 
their  capital  into  the  line  which  promises  the  higher  rate, 
thus  increasing  the  supply  and  diminishing  the  price  at 
which  it  can  be  sold. 

"4.  The  equation  of  supply  and  demand  is  thus  a  double 
process.  First,  a  temporary  adjustment  of  the  demand  to 
the  supply  by  the  commercial,  competition  of  merchants, 
which  lowers  (or,  in  the  converse  case,  raises)  the  price 
until  it  corresponds  to  the  marginal  utility,  i.  e.,  until  it  be- 
comes just  worth  while  for  customers  to  take  the  whole  sup- 
ply at  the  price  in  question.  Then  there  is  a  more  perma- 
nent though  less  accurate  and  universal  adjustment  of  the 
supply  to  the  demand,  by  the  individual  competition  of  in- 
vestors, which  lowers,  or  raises,  the  price  until  it  becomes 
proportionate  to  the  marginal  expense  of  production,  i.  e., 
until  it  becomes  just  worth  while  for  producers  to  meet  the 
whole  demand  at  the  price  in  question. 

"This  is  the  theory  of  supply  and  demand  as  developed 
by  the  English  economists  from  Smith  to  Cairnes."^ 

*  President  Hadley  refers  to  the  mathematical  form  of  expression 
attempted  by  Cournot  (1838),  Jevons  (1871),  and  Marshall  (1890). 
See  also  "Measurement  of  General  Exchange  Value,"  by  C.  M.  Walsh. 


248  THE  NEW  COMPETITION 


From  the  foregoing  summary  of  the  work  of  a  century 
and  a  quarter  it  is  plain  the  theory  of  supply  and  demand 
and  of  price  has  not  advanced  a  hair's  breadth  beyond  that 
formulated  by  Adam  Smith ;  subsequent  writers  have  simply 
rung  the  changes  on  the  theme  he  furnished;  his  compara- 
tively simple  propositions  have  been  almost  lost  in  a  wealth 
of  ingenious  refinement.  He  was  content  to  describe  things 
as  he  saw  them  and  formulate  certain  general  propositions; 
his  successors,  most  of  them,  have  retired  from  the  market 
place,  from  actual  observations  of  daily  happenings,  and  in 
the  seclusion  of  the  closet  attempted  to  reduce  his  generali- 
zations to  mathematical  propositions  and  give  them  the  sem- 
blance of  laws. 

When  the  interminable  discussion  of  the  "theory" 
and  the  so-called  "laws"  of  supply  and  demand  ceases 
for  a  moment  the  producer  who  is  selling  below  cost 
facing  ruin,  or  the  buyer  who  cannot  get  what  he  needs 
except  at  exorbitant  prices,  asks,  "Well,  gentlemen, 
what  then?  Granting  all  you  say,  how  does  it  help  my 
case  ?'* 

The  professional  economist  rouses  himself  from  his  ab- 
stractions long  enough  to  reply,  "My  dear  man,  you  must 
not  bother  me,  I  am  not  interested  in  you  individually,  you 
simply  happen  to  be  one  of  the  many  victims  of  the  free 
competition  that  is  essential  to  the  proper  operation  of  the 
law  of  supply  and  demand,  your  ruin  is  merely  an  incident 
of  economic  progress." 

"But  I  don't  wish  to  lose  all  I  have  in  the  world." 

"Naturally,  but  it  can't  be  helped,  free  competition — " 

"D free  competition." 

"Oh— oh~that  is  blasphemy." 


WHAT  IS  A  FAIR  PRICE?  249 


VI 


When  Adam  Smith  said,  ''It  is  to  the  interest  of  all  those 
who  employ  their  land,  labor,  or  stock,  in  bringing  any  com- 
modity to  market,  but  (that)  the  quantity  never  should  ex- 
ceed the  effectual  demand;  and  it  is  to  the  interest  of  all 
other  people  that  it  never  should  fall  short  of  that  demand," 
he  was  very  close  to  the  human,  the  vital  side  of  the  problem 
he  was  discussing,  but  he  did  not  follow  the  matter  further, 
and  from  his  day  to  this  scarcely  an  economist  has  devoted 
time  and  thought  to  the  really  great  problem  of  intelligent 
control  of  so-called  ''economic  laws." 

If  it  is  to  the  interest  of  the  community  that  supply  and 
demand  should  be  maintained  as  nearly  as  possible  in  a  state 
of  equilibrium,  then  it  should  be  the  business  of  the  com- 
munity to  devise  ways  and  means  for  controlling  the  violent 
fluctuations  due  to  free  competition. 

In  every  country  town  the  prices  of  small  products  of  the 
farm  are  the  result  of  "free  competition."  When  the 
weather  is  fair  farmers  "come  to  town"  in  such  large  num- 
bers and  bring  so  much  to  market,  prices  drop  to  absurdly 
low  figures ;  when  the  weather  is  bad  little  is  brought  in  and 
prices  go  np  to  absurdly  high  figures.  One  year  there  is  a 
shortage  of  crops  and  prices  soar,  the  next,  under  the  in- 
centive of  the  high  prices  of  the  year  before,  a  larger  acreage 
is  planted,  the  season  is  good,  crops  are  abundant,  and  prices 
drop  to  a  level  that  yields  many  farmers  less  than  cost. 

What  are  farmers  doing  to  help  these  conditions?  Are 
they  meekly  submitting  to  the  "law"  of  supply  and  demand  ? 
Are  they  content  with  the  doctrine  of  "free  competition"? 
Not  at  all :  they  read  and  are  guided  by  government  crop  re- 
ports ;  they  are  forming  cooperative  societies  to  control  com- 
petition,, to  introduce  rational  and  scientific  supervision  over 


250  THE  NEW  COMPETITION 

both  production  and  marketing  to  the  end  that  prices  may 
be  more  stable  and  returns  more  constant. 


VII 

"Market  price"  is  a  statistical  proposition,  it  has  no  real, 
no  tangible  existence  aside  from  tables  of  averages. 

What  an  article  sells  for  is  its  price,  whether  it  is  the 
market  price  for  similar  articles  depends  upon  an  average 
struck  from  a  number  of  sales. 

Tables  of  averages  and  variations  are  of  value;  they 
furnish  data  not  only  for  conducting  business,  but  for  con- 
trolling competition.  They  should  be  compiled  for  every  in- 
dustry and  every  locality,  and  carefully  studied.  To  a  cer- 
tain extent  the  government  does  this,  but  on  so  large  a 
scale  the  figures,  when  published,  are  of  little  real  assistance 
to  the  individual  farmer  and  manufacturer,  they  do  not  help 
him  to  make  up  his  mind  what  he  should  do  next  week, 
next  month. 

VIII 

The  prevailing  price  for  certain  plows  may  be  $20.00. 

Three  makers  supply  the  market,  and  the  plows  they 
make  are  so  alike  it  is  immaterial  to  users  which  they  buy. 

Each  plow  costs  A,  a  new-comer,  with  his  smaller  plant, 
$20.00  to  make;  B,  with  a  larger  output,  $19.00;  C,  with  a 
very  large  output,  $18.00 — what  is  the  fair  price  for  those 
plows? 

At  $20.00  it  is  but  a  question  of  time  when  A  will  go  out 
of  business;  B  is  making  only  fair  returns  on  his  invest- 
ment ;  C  with  his  larger  output  is  making  large  profits. 

If  A  goes  out  of  business  the  price  of  plows  will  advance 
materially ;  if  he  is  to  remain  in  business  they  mtcsi  advance. 

Under  free  competition  A  hovers  on  the  edge  of  bank- 


WHAT  IS  A  FAIR  PRICE?  251 

ruptcy;  if  he  closes  down  temporarily,  plows  advance  to 
$21.00  and  he  immediately  starts  up,  when  the  price  drops 
again  to  $20.00.  He  is  on  the  ragged  edge  of  industrial 
starvation. 

This  is  no  fanciful  illustration.  It  is  the  normal  condi- 
tion of  the  industrial  and  commercial  world;  it  is  the  condi- 
tion described  by  Smith;  it  is  the  "margin  of  cultivation" 
of  Ricardo  and  writers  upon  agriculture  and  rents;  it  is 
recognized  in  the  phrases  "marginal  increment,"  "marginal 
utility,"  etc. 

Under  free  competition  fluctuations  in  supply  and  de- 
mand are  sudden  and  wide,  as  the  most  cursory  study  of 
price  charts  demonstrates. 

The  inevitable  result  is  that  the  margin  of  instability  in 
every  occupation  and  industry  is  very  wide,  wide  in  direct 
proportion  to  the  freedom  of  the  competition,  narrow  where 
competition  is  controlled. 

The  practical  question  for  the  community  to  consider  is, 
whether  it  is  better  to  broaden  this  margin  of  instability — 
of  loss  and  disaster — by  encouraging  still  greater  freedom 
and  recklessness  of  competition,  or  narrow  the  margin  of 
instability  by  controlling  competition. 

Is  it  to  the  interest  of  the  community  that  plows  should 
be  sold  at  $20.00  until  A  is  ruined  and  then  go  to  $22.00 
or  $24.00,  where  possibly  they  were  before  A  started  in ;  or 
is  it  not  to  the  interest  of  the  community  to  pay  $21.00  and 
keep  all  three  makers  in  business?^ 


IX 


Statistics  show  that  a  given  steel  industry  has  a  "boom" 

period  on  an  average  but  once  in  five  years,  the  four  years 

*  Taking,  perhaps,  some  of  the  increased  profits  of  B  and  C  by  an 
income  tax.  This  means  of  equalizing  conditions  is  always  open,  and, 
in  time,  will  be  worked  out  on  a  scientific  basis. 


252  THE  NEW  COMPETITION 

range  from  dull  to  the  point  of  disaster,  the  business  is  a 
**feast  or  a  famine,"^  yet  such  is  human  nature  that  the  one 
good  year  invariably  leads  to  a  large  increase  of  capacity  in 
additions  and  new  plants;  new  men  and  capital  rush  into 
the  business,  all  of  which  means  large  losses  in  the  "lean" 
years  certain  to  follow. 

It  is  not  surprising  the  individual  who  is  ever  sanguine 
should  make  foolish  investments,  but  it  is  surprising  that 
experience  has  taught  the  community  so  little  it  encourages 
the  individual  to  do  things  that  mean  loss  of  time,  labor  and 
money,  and  the  demoralization  of  an  entire  industry. 

The  community  does  not  seem  to  appreciate  that : 

All  losses  in  unproductive  and  unremunerative  enter- 
prises are  home  by  the  community. 

The  argument  that  the  public  may  profit  by  the  demor- 
alized prices  that  prevail  for  a  time  is  more  specious  than 
sound,  it  amounts  to  the  proposition  that  the  community 
profits  in  the  end  from  commercial  savagery,  from  the  ruin 
of  its  members,  which,  if  true,  would  lead  to  the  pessimistic 
conclusion  that  the  community  and  its  commercial  code  are 
both  depraved — a  conclusion  reached  by  many  a  teacher  of 
men  from  Christ  down. 


There  is  still  another  aspect  to  this  price  question. 

In  the  operation  of  a  gas  plant  for  lighting  there  is  al- 
ways a  period  in  every  twenty-four  hours,  usually  the  early 
evening  hours,  when  the  consumption  of  gas  is  at  its  maxi- 
mum— this  point  of  highest  consumption  is  the  "peak  load." 

The  peak  load  in  a  lighting  plant  is  not  the  same  for  each 

*  This  is  true  in  nearly  all  branches  of  the  iron  and  steel  trade,  as 
well  as  in  many  other  industries,  far  truer  than  it  is  in  farming,  for  the 
farmer  can  count  on  more  good  crops,  or  high  prices,  for  smaller  crops, 
than  any  steel  manufacturer  can  upon  good  years  and  good  prices. 


WHAT  IS  A  FAIR  PRICE?  253 

twenty-four  hours  of  the  year;  it  varies,  increasing  with 
the  short,  dark  days  of  winter,  decreasing  with  the  days  of 
spring  and  summer ;  the  peak  for  the  year  may  be  the  three 
hours  from  5  p.  m.  to  8  p.  m.  the  day  before  Christmas,  but 
whenever  it  comes,  the  plant  must  be  equipped  to  meet  it 
and  the  cost  of  carrying  this  excess  of  capacity  is  borne  by 
the  community  in  the  price  of  gas;  the  community  recog- 
nizes its  obligation  to  those  who  own  the  plant,  for  whether 
the  plant  is  owned  by  the  municipality  or  a  private  corpora- 
tion, the  cost  of  maintaining  it  to  meet  the  maximum  de- 
mand is  the  same. 

It  is  comparatively  easy  and  inexpensive  to  equip  a  gas 
plant  to  meet  variations  in  consumption,  for  gas  can  be 
stored;  the  huge  gas  tanks  that  loom  up  in  every  town  are 
the  reservoirs  built  to  hold  the  gas  that  is  manufactured 
steadily  during  the  twenty-four  hours. 

An  electric  light  plant  is  subjected  to  the  same  sudden 
and  wide  variations  in  demand,  it  must  be  built  to  carry  the 
same  peak  load. 

The  plant  is  costly  to  install  and  maintain,  the  storage  of 
electricity  is  not  so  easy  as  the  storage  of  gas,  hence  all 
well-managed  electric  companies  try  in  every  possible  way 
to  increase  the  consumption  of  electric  energy  during  the 
day,  to  encourage  the  use  of  electricity  as  a  power.  Gas 
companies  are  doing  the  same  thing  for  gas,  and  between 
the  two  builders  of  small  steam  engines  are  having  a  hard 
time. 

But  whether  a  plant  is  operated  at  its  maximum  three 
hours  or  fifteen,  the  cost  of  operation  and  maintenance  of 
the  extra  capacity  required  to  meet  the  peak  load  is  borne 
by  the  community  in  the  prices  charged. 

In  these  instances  the  community  admits  without  ques- 
tion its  obligation  tu  insure  a  profit  upon  the  equipment 
necessary  to  meet  wide  fluctuations  in  demand. 


254  THE  NEW  COMPETITION 


XI 


The  supplying  of  gas  and  electricity  has  been  used  as  an 
illustration,  not  because  there  is  anything  exceptional  about 
the  industries,  but  because  everybody  is  familiar  with  the 
conditions  under  which  they  must  be  operated. 

What  is  true  of  lighting  plants  is  true  in  greater  or 
lesser  degree  of  every  industry.  The  productive  capacity  of 
each  must  he  suMcient  to  meet  its  peak  load. 

The  merchant  must  provide  floor  space,  goods,  sales- 
men, delivery  wagons  sufficient  to  take  care  of  his  customers 
during  "rush"  hours  and  busy  seasons,  otherwise  he  loses 
trade. 

The  manufacturer  must  provide  plant  and  facihties  to 
meet  the  demands  of  his  trade  during  perhaps  three  busy 
months  of  the  year,  and  one  good  year  out  of  three  or  four. 

What  is  the  inevitable  result  of  the  tendency  in  every 
industry  to  expand  to  meet  the  requirements  of  ''boom" 
times  ? 

In  all  years  except  those  of  maximum  demand,  capacity 
so  far  outruns  the  market  that  fifty  or  seventy-five  per  cent, 
is  idle. 

Nothing  is  more  common  than  to  hear  the  complaint 
mournfully  reiterated  by  intelligent  manufacturers. 

"The  trouble  is  there  is  too  much  capacity,  too  many 
mills." 

Yes,  but  when  the  peak  load  comes  every  mill  works 
night  and  day  and  the  same  men  spend  millions  in  addi- 
tions, only  to  shut  down  in  a  few  months  and  relapse  into 
the  chronic  condition  of  over-capacity. 

If  the  consumption  of  electric  power  and  light  were  con- 
stant throughout  the  twenty-four  hours  no  over-capacity 
would  be  required,  but  as  it  is  not  constant,  the  over-capacity 


WHAT  IS  A  FAIR  PRICE?  255 

made  necessary  by  variation  in  load  must  be  provided  and 
is,  therefore,  normal. 

If  the  demand  for  manufactured  goods  were  constant 
from  year  to  year,  there  would  be  no  need  for  over-capacity, 
but  as  the  demand  is  not  constant  in  any  industry  the  over- 
capacity necessary  to  meet  the  peak  load  is  a  normal  condi- 
tion. 

Railroads  must  have  tracks,  cars  and  equipment  to  take 
care  of  "bumper  crops";  if  they  fail,  farmers  make  their 
complaints  heard  in  legislatures  and  by  railroad  commis- 
sions— laws  are  passed,  fines  imposed. 

Iron  and  steel  companies  must  maintain  hundreds  of 
millions  in  idle  furnaces  and  mills,  waiting  for  the  "boom" 
that  is  years  in  coming;  if  they  do  not,  and  prices  soar  as 
the  result  of  unexpected  demand,  the  consumer  complains 
and  makes  his  complaints  heard  in  the  press  and  before  in- 
vestigating committees. 

XII 

So  far  we  have  spoken  of  the  over-capacity  normally 
necessary  in  every  industry  to  meet  the  peak-load  as  if  it 
were  simply  a  question  of  plant  and  equipment  capacity — of 
idle  capital  during  the  long  periods  when  the  maximum  out- 
put is  not  demanded;  but  the  matter  is  more  serious,  it  is 
not  simply  a  question  of  idle  capital,  but  also  of  idle  labor. 

To  a  certain  extent — though  only  to  a  certain  extent — • 
the  capitalist,  the  plant  owner,  can  look  ahead  and  provide 
against  the  certain  coming  of  dull  and  bad  times,  then  when 
such  times  do  come  he  shuts  down  and  reduces  his  cost  of 
maintenance  to  the  two  items  of  interest  on  his  investment 
and  depreciation,  but  how  about  labor?  It  cannot  shut 
down,  it  cannot  reduce  expenses  very  much,  it  must  live, 
and  everybody  knows  how  hard  it  is  for  labor  to  get  along 
during  the  long  periods  of  depression  while  waiting  for 


256  THE  NEW  COMPETITION 

"business  to  pick  up,"  for  the  fires  to  be  lighted  and  the 
wheels  to  be  set  in  motion. 

So  wasteful  and  improvident  is  the  economic  organiza- 
tion of  modern  society  that  to  meet  its  demands,  to  carry 
its  peak  loads — many  due  largely  to  whims  and  unrestrained 
impulses — a  large  percentage  of  the  capital  and  labor  in 
every  industry,  practically  every  occupation,  must  be  main- 
tained in  idleness  from  a  quarter  to  three-fourths  of  the 
time.  And  so  indifferent  is  society  to  its  moral  and  economic 
obligations  during  these  periods  that  it  sees  capital  rust  and 
labor  starve  with  callous  indifference,  complaining  bitterly 
if  both  are  not  ready  to  respond  when  the  stress  comes, 
when  the  community  experiences  what  is  fundamentally  a 
psychological  condition — the  "buying  fever." 


XIII 


Generally  speaking  prices  of  farm  products  rise  and  fall 
with  cost,  while  prices  of  manufactured  goods  rise  and  fall 
inversely  to  cost. 

The  one  is  a  normal  and  sound  response  to  conditions, 
the  other  is  an  abnormal  and  unsound  response. 

If  crops  are  short  the  cost  per  unit — per  bushel — is  high 
and,  other  things  being  equal,  prices  are  high;  and  vice  versa 
if  crops  are  abundant. 

If  the  output  of  manufactured  goods  is  low,  cost  per 
unit  is  high,  but  prices  are  low,  and  when  the  output  of 
goods  is  at  the  maximum  cost  is  low  and  prices  high. 

To  verify  these  propositions  by  appeal  to  statistics  would 
involve  an  exhaustive  analysis  of  market  conditions  through- 
out the  world,  for  prices  of  staple  agricultural  products  in  a 
given  country  are  affected  not  only  by  the  output  of  the 
country  but  by  the  crops  and  market  conditions  in  all  other 
countries;  but  every  farmer  and  every  manufacturer  knows 


WHAT  IS  A  FAIR  PRICE?  257 

the  truth  without  going  beyond  their  own  personal  obser- 
vations. 

The  farmer  knows  that  if  on  the  same  acreage  and  with 
the  same  labor  he  produces  but  two  bushels  of  wheat  where 
the  year  before  he  produced  three,  his  cost  per  bushel  is 
higher,  and  if  farmers  throughout  the  country  have  had  no 
better  success,  the  price  of  wheat  will  be  higher,  how  much 
higher  will  depend  a  good  deal  upon  crops  in  other  coun- 
tries. 

Per  contra  if  the  same  acreage  and  labor  yield  five  bush- 
els as  against  three  the  year  before,  the  cost  per  bushel  is 
lower,  and,  other  things  being  equal,  the  price  will  be  lower. 

The  manufacturer  faces  the  exact  reverse  of  these  con- 
ditions; his  prices  move  inversely  to  his  costs. 

It  being  conceded  that  a  fair  price  should  cover  legiti- 
mate cost  plus  at  least  some  profit,  it  follows  that  prices 
should  vary  with  cost  and  thus  ordinarily  he  higher  when 
the  output  is  low,  and  vice  versa. 

But — as  noted  by  Adam  Smith — the  exact  reverse  ob- 
tains. As  demand  falls  and  output  is  curtailed  prices  in- 
variably fall. 

The  condition  is  a  curious  illustration  of  the  tendency 
of  men  to  accept  as  right  and  natural  any  evil,  however 
great,  if  it  is  of  long  duration. 

That  prices  should  drop  as  cost  advances  and  rise  as 
cost  drops  is  a  fundamentally  unsound  condition,  yet  be- 
cause such  has  been  the  result  of  the  old  unrestricted  com- 
petition from  time  immemorial,  the  very  people  who  suffer 
most,  employers  and  employees,  tamely  acquiesce. 

If  the  community  were  organized  on  a  socialistic  basis, 
prices  woidd  rise  and  fall  with  cost;  the  state  would  not 
commit  the  folly  of  selling  goods  cheaper  and  cheaper  as 
they  cost  more  and  more ;  nor  would  the  people  permit  the 
state  to  charge  higher  and  higher  prices  as  cost  dropped! 
lower  and  lower. 


258  THE  NEW  COMPETITION 

In  cities  that  make  any  pretence  of  managing  their  gas 
or  water  plants  on  a  business-like  basis,  charges  for  gas  and 
water  rise  and  fall  with  cost  of  the  service ;  in  the  best  mu- 
nicipal plants  this  is  the  case,  and  in  no  municipal  plant  are 
prices  advanced  as  consumption  increases  and  costs  drop. 

Why  should  not  the  same  rule  obtain  in  private  enter- 
prise? Why  should  not  men  be  encouraged  to  co-operate 
to  control  the  ancient  "law"  of  supply  and  demand,  and 
keep  prices  as  constant  with  relation  to  cost  as  cities  try 
to  do  in  their  industries? 


XIV 


Demand  is  a  desire  backed  up  by  the  ability  to  give  some- 
thing to  satisfy  the  desire — it  is  a  psychological  and  emo- 
tional state;  it  is  a  human  longing. 

Supply  is  a  material,  a  physical  proposition;  it  is  the 
physical  response  to  a  psychological  state,  the  objective  re- 
sponse to  a  subjective  condition.  There  is  no  such  thing  as 
supply  without  demand,  and  there  is  no  such  thing  as  de- 
mand without  supply.^ 

No  man  offers  a  supply  of  anything  in  the  market  with- 
out wanting  something  for  it,  and  the  amount  of  goods  or 
services  he  is  willing  to  part  with  depends  upon  the  strength 
of  his  desire  for  what  he  is  to  receive,  money  or  the  things 
money  will  buy,  and  not  upon  the  strength  of  some  one 
else^s  desire  for  the  goods  or  services  in  question. 

"Supply"  and  "demand"  are  commonly  discussed  as  if 
two  contending  and  independent  forces  were  forcing  the 
market  this  way  and  that,  as  if  at  one  period  a  large  quan- 
tity of  goods  was  being  pushed  upon  a  market  devoid  of 
"demand,"  and  at  another  a  huge  "demand"  sprang  up  in 

*It  is  needless  to  say  that  it  is  the  "effective"  demand,  defined  by 
Adam  Smith,  that  is  here  referred  to,  as  distinguished  from  vague 
desires  and  vain  imaginings  that  are  not  backed  up  by  the  offer  of  any- 
thing for  their  satisfaction. 


WHAT  IS  A  FAIR  PRICE?  259 

the  absence  of  "supply,"  whereas  the  truth  is  "demand"  and 
"supply" — strictly  speaking — are  ever  constant  and  equal, 
but  shift  in  two  distinct  ways : 

1.  From  object  to  object,  or  from  one  class  of  objects 
or  services  to  another. 

2.  From  all  objects  and  services  to  money. 

Changes  of  the  first  class  occur  frequently  and  are  due 
largely  to  changes  in  taste,  to  whims,  fancies.  The  auto- 
mobile "craze"  is  an  illustration ;  it  has  seriously  affected  the 
vehicle  industry.  But  while  these  shiftings  of  "demand" 
depress  certain  industries  and  build  up  others,  they  have 
only  a  remote  bearing  on  good  times  and  bad,  on  panics  and 
"booms." 

It  is  when,  for  some  reason  difficult  to  ascertain,  the 
public  suddenly  lessens  its  demand  for  all  services  and  all 
goods  and  increases  its  demand  for  money ;  suddenly  ceases 
to  spend  freely  and  begins  to  hoard,  that  "hard"  times  are 
precipitated. 

It  is  common  to  speak  of  the  "public"  as  if  some  great 
body  made  itself  felt  in  the  market;  in  reality  the  change 
referred  to  has  its  origin  in  the  individual,  the  farmer,  the 
laborer,  the  merchant,  the  manufacturer. 

A  strange  wave  of  pessimism  sweeps  over  the  country 
— induced  possibly  by  some  comparatively  insignificant 
cause — and  every  man  suddenly  wishes  to  sell  what  he 
has  and  hoard  the  money,  accumulate  credit,  against  some 
catastrophe  he  fears  but  cannot  describe. 


XV 


Changes  in  demand  from  this  article  to  that,  though  at- 
tended with  loss  and  inconvenience,  cannot  be  helped  very 
materially.     Twelve  years  ago  no  one  could  foresee  the 


26o  THE  NEW  COMPETITION 

amazing  develppment  of  the  demand  for  automobiles,  any 
more  than  thirty-five  years  ago  any  one  could  foresee  and 
prepare  for  the  development  of  the  bicycle  industry.  The 
flying  machine  may  revolutionize  warfare  and  all  the 
machinery  of  v^arfare.  Some  yet  undiscovered  source  of 
energy  may  render  useless  all  types  of  engines  nov^  in  use; 
but  happily  these  changes  almost  invariably  result  in  highly 
— though  often  artificially — prosperous  times.  These 
changes  cannot  be  helped;  they  v^ould  occur  in  the  social- 
istic or  Utopian  community. 

Far  more  serious  results  follov^  the  sudden  shifting  of 
the  demand  of  the  entire  community  for  objects  and  ser- 
vices to  the  demand  for  money — in  other  v^ords,  from  the 
normal  daily  consumption  of  objects  and  services,  to  the 
accumulation  of  power  to  command  the  same;  it  is  this 
condition  that  should  be  studied  systematically  and  rem- 
edied in  so  far  as  it  can  be;  it  is  the  cause  of  all  panics,  it 
is  a  panic. 

It  is  primarily  a  psychological  problem,  and  not  at  all 
one  of  supply  and  demand  as  commonly  understood. 

Actual  production  has  very  little  to  do  with  the  mat- 
ter. Crops  may  fail,  great  disasters  occur,  immense  wealth 
be  destroyed  in  one  way  and  another  without  causing 
"hard"  times  or  dull  times;  a  "boom^'  may  even  follow  a 
serious  shortage  of  crops.  Per  contra,  out  of  a  clear  sky, 
when  the  country  is  actually  producing  more  wealth,  more 
food,  more  clothing,  more  luxuries,  more  gold  and  silver 
than  ever  before,  there  may  come  in  a  month,  a  week,  a 
day,  a  feeling  of  fear  and,  as  if  by  common  consent,  tlie 
people  from  the  Atlantic  to  the  Pacific  begin  trying  to  get 
rid  of  whatever  they  have  to  sell  and  accumulate  money. 
A  "panic''  is  a  money  and  credit  proposition;  it  could  not 
occur  where  barter  prevails;  a  medium  of  exchange  is 
necessary  to  a  panic,  for  the  panic  is  over  the  medium  of 
exchange  and  involves  the  destruction  of  credit 


WHAT  IS  A  FAIR  PRICE?  261 

Something  will  yet  be  done  to  prevent  these  "panics," 
but  that  is  a  large  subject  and  aside  from  the  one  in  hand. 

For  the  present  it  may  be  assumed  that  panics,  hard 
times,  dull  times,  good  times,  and  "booms"  will  follow  one 
another  periodically — the  circular  insanity  of  the  com- 
mercial world. 

That  being  so,  the  practical  question  is:  What  can  be 
done  to  mitigate  the  evils  of  these  extreme  fluctuations? 

By  legislation  very  little  can  be  done,  by  cooperation  a 
great  deal  may  be  done,  and  without  cooperation  nothing 
can  be  done. 

For  instance,  an  industry  equipped  with  plants  and  labor 
to  meet  a  given  peak  load  may  do  one  of  three  things  to 
bridge  the  time  when  its  maximum  output  is  not  in  demand. 

If  the  character  of  its  output  permits, 

1.  It  may  do  as  the  gas  company  does,  continue  to 
manufacture  steadily  and  store  its  product  until  the  de- 
mand comes.  This  can  be  done,  and  only  in  a  measure,  by 
comparatively  few  industries. 

2.  It  can  seek  new  markets,  as  the  electric  light  com- 
pany seeks  to  create  a  demand  for  electric  power  during  the 
day.  This  is  done  by  quite  a  number  of  industries,  notably 
some  of  the  steel  companies  and  a  few  other  large  produc- 
ers who  systematically  endeavor  to  develop  their  foreign 
trade,  even  going  so  far  as  to  sell  abroad  lower  than  at 
home  to  get  rid  of  the  surplus  that  inevitably  accumulates  if 
plants  are  operated  full  and  labor  kept  employed  in  dull 
times.^ 

3.  It  can  shut  down  and  wait — which  is  what  most 

plants  do  in  whole  or  in  part. 

*  This  "dumping"  of  goods  by  one  country  on  another  is  absolutely 
indefensible  from  any  point  of  view;  it  is  unfair  to  the  country  that 
sells,  and  doubly  unfair  and  demoralizing  to  the  country  that  buys.  It 
works  to  the  disadvantage  of  the  small  producer  in  both  countries.  It 
would  be  exceedingly  difficult  to  reach  and  suppress  the  practice  by 
law,  but  cooperative  associations,  national  and  international,  with  the 
aid  of  the  law,  may  suppress  it. 


262  THE  NEW  COMPETITION 

The  first  two  courses  imply  attempts  to  maintain  prices 
above  ruinous  levels,  but  so  few  industries  can  either  store 
their  products  or  sell  abroad  that  in  the  maintenance  of 
prices  generally  their  efforts  are  negligible. 

It  is  the  "over-production"  that  precedes  the  shutting 
down,  and  the  shutting  down  itself  that  play  havoc  with 
prices;  they  fall  when  they  should  be  higher;  the  unfor- 
tunate producer  is  a  loser  at  both  ends,  in  higher  costs  and 
lower  prices. 

In  a  measure  this  condition  may  be  controlled  by  the  co- 
operation of  all  in  the  industry.  An  association  could  regu- 
late both  output  and  prices ;  it  could  so  apportion  what  busi- 
ness there  is  that  all  plants  would  be  kept  in  operation  to  a 
certain  extent,  and  it  could  arbitrarily  advance  prices  as 
costs  rise  so  that  for  whatever  goods  were  sold  fair  prices 
would  be  realized. 

As  the  law  now  stands  such  acts  would  not  be  legal, 
but  the  time  will  come  when  they — or  some  other  stringent 
regulations  to  accomplish  the  same  ends — will  be  approved 
by  the  public. 


XVI 


It  will  not  be  long  before  the  country  will  recognize  its 
obligations,  economic  and  moral,  to  men — employers  and 
laborers — who,  in  response  to  the  needs  and  desires  of  the 
country,  hold  themselves  and  all  they  have  in  readiness"  to 
supply  the  maximum  demand,  the  peak  load.  The  country 
will  not  only  permit  them  to,  but  will  insist  they  shall,  get 
at  all  times  fair  prices  for  products  and  services,  and  fair 
prices  mean  prices  which  cover  all  the  risks  and  losses  in- 
cidental to  the  enterprise  through  both  good  times  and  bad. 

If,  by  way  of  illustration,  an  association  of  manufac- 
turers of  staple  cotton  goods  steadily  advanced  prices  as  out- 


WHAT  IS  A  FAIR  PRICE?  263 

put  fell  off  and  costs  advanced,  how  long  would  it  be  be- 
fore buying  would  begin  again  ? 

It  may  sound  paradoxical  to  say  buying  would  be  stim- 
ulated by  advancing  prices,  but  it  always  is  under  normal 
conditions;  it  is  human  nature  for  a  man  to  buy  when  he 
sees  prices  are  going  up  and  thinks  they  are  going  higher; 
it  is  also  human  nature  to  stop  buying  when  he  sees  prices 
dropping  and  thinks  they  are  going  lower. 

There  is,  of  course,  always  a  point  at  each  extreme 
where  the  tide  turns,  but,  generally  speaking,  there  is 
nothing  so  stimulating  to  buying  as  a  rising  market, 
nothing  so  discouraging  to  buying  as  a  falling  market. 

In  fact,  the  rising  market  is  largely  due  to  the  stimu- 
lated buying,  and  the  falling  market  is  largely  due  to  the 
holding  back  of  buyers,  each  waiting  until  he  thinks  the 
bottom  is  reached. 

The  arbitrary  adjustment  of  prices  to  cover  costs  would 
do  more  than  any  other  one  expedient  to  stabilize  prices 
and  keep  the  market  at  a  constant  level. 

With  prices  adjusted  to  costs,  buyers  would  know  that 
every  decrease  in  demand  would  mean  higher  costs  and 
higher  prices — hence,  there  would  be  no  object  in  holding 
off;  on  the  contrary,  there  would  be  every  incentive  to  buy 
and  restore  the  equilibrium. 

Business  will  not  he  on  a  sound  economic  basis  until 
prices  rise  and  fall  with  costs. 


XVII 

The  word  "fair"  in  connection  with  price  lacks  virility; 
it  not  only  admits  but  invites  debate;  it  suggests  possibil- 
ities of  variations. 

A  fair  price  is  a  right  price,  and  the  right  price  depends 


264  THE  NEW  COMPETITION 

upon  conditions  that  are  susceptible  to  scientific  investiga- 
tion. 

Price  is   fundamentally  a  scientific  proposition. 

The  scientific  side  to  the  question  of  cost  has  long  been 
recognized.  Men  are  being  taught  slowly  but  surely  that 
cost  is  not  the  haphazard  proposition  our  fathers  supposed 
it  was,  a  mere  matter  of  adding  together  all  outlays  and 
calling  the  total  "cost."  The  problem  of  cost  is  receiving 
profound  consideration,  and  its  difficulties  are  beginning  to 
be  appreciated.  What  is  cost  to  an  individual  is  not  cost 
to  a  community ;  what  is  cost  to  one  section  of  an  industry  is 
not  cost  to  another ;  what  is  cost  in  one  locality,  or  country, 
is  not  in  another ;  what  is  cost  one  year  is  not  another — and 
so  on. 

But  the  more  elusive  the  solution  the  more  interesting 
the  problem.  The  outcome  depends  upon  systematic  in- 
vestigation, and  such  investigation  will  be  best  promoted 
by  cooperative  organizations,  under  Government  super- 
vision. 

Ultimately  certain  rules  will  be  laid  down  for  the  as- 
certainment of 

1.  Costs  to  the  individual. 

2.  Costs  to  the  industry. 

3.  Costs  to  the  community. 

4.  Costs  to  the  country. 

5.  Costs  to  the  world. 

Standard  systems  of  cost  accounting  will  be  adopted 
and  their  use  required,  to  the  end  that  individual  enter- 
prises and  entire  industries  may  make,  when  required,  re- 
ports of  uniform  value,  and  be  subject  to  easy  and  speedy 
investigation. 

As  the  problem  of  cost,  which  is  of  first  and  funda- 
mental importance,  is  worked  out,  the  question  of  price 
naturally  follows. 


WHAT  IS  A  FAIR  PRICE?  265 

Whether  a  man  shall  be  permitted  to  add  little  or  much 
to  his  cost  by  way  of  profit,  one  thing  is  certain,  the  right 
price  never  falls  belozv  cost. 

The  community  has  a  direct  and  vital  interest  in  main- 
taining prices  above  cost. 

When  a  man  is  detected  selling  goods  below  cost  his 
conduct  should  be  as  promptly  and  rigidly  investigated  as 
if  he  were  detected  in  secreting  goods  to  defraud  his  cred- 
itors— the  offenses  are  akin. 


XVIII 

When  a  merchant,  a  manufacturer,  or  a  farmer  fails  the 
public  looks  upon  his  misfortune  as  his  own,  and  passes  on. 

This  indifference  of  the  community  to  the  prosperity 
of  its  units  is  a  curious  phenomenon  for  one  would  think 
that  the  whole  would  realize  its  welfare  depends  upon  the 
welfare  of  its  parts,  that  every  unit  which  fails  to  support 
itself  is  a  burden  upon  other  units  and  a  debit  against  the 
resources  of  all. 

The  man  who  watches  his  neighbor's  house  burn  and 
congratulates  himself  that  his  own  has  escaped  seldom  stops 
to  think  that,  while  the  loss  falls  in  the  first  instance  on  his 
neighbor,  secondly  on  the  insurance  companies,  if  there  be 
insurance,  the  real  loser  is  the  community;  if  there  is  in- 
surance the  loss  will  be  distributed  in  its  rates,  but  whether 
distributed  or  not  the  country  is  out  just  that  much  useful 
property,  property  into  which  the  time  and  labor  of  the 
community  went. 

The  losses  due  to  wasteful  and  ruinous  competition,  to 
foolish  and  reckless  investments,  to  selling  below  cost,  are 
all  borne  by  the  community  the  same  as  losses  by  fires. 

In  1 9 10  $214,000,000  worth  of  property  was  destroyed 
by  fire  in  the  United  States.     In  the  same  year  there  were 


266  THE  NEW  COMPETITION 

failures  with  liabilities  amounting  to  over  $201,000,000. 
The  assets  probably  did  not  realize  more  than  a  small  per- 
centage of  that  gross  amount. 

On  the  face  of  the  reports  it  appears  that  the  losses  due 
to  wasteful  business  methods  almost  equal  losses  due  to 
fires ;  as  a  matter  of  fact  they  are  far  greater,  for  of  the  men 
who  lose  in  business  and  who  are  driven  out  by  competition, 
comparatively  few  publicly  acknowledge  their  failures  and 
plead  bankruptcy.  By  far  the  larger  number  manage  to  pay 
their  debts  and  retire  quietly,  but  because  they  "pocket  their 
losses"  and  say  nothing  the  effect  upon  the  wealth  of  the 
community  is  not  changed. 

The  pedler  who  buys  a  clock  for  $10.00  and  at  the  end 
of  the  week  sells  it  for  what  he  paid  for  it,  is  out  a  week's 
time  and  his  support  for  that  period,  and  the  community  is 
out  the  same. 

When  a  man  inherits  $100,000  and  invests  it  in  a  farm 
or  manufacturing  business  he  invests  v/hat  is  nominally  and 
legally  his,  but  what  is  in  reality  part  of  the  accumulated 
capital  of  the  community,  capital  created  by  the  preceding 
generation;  if  he  loses  it  all  he  is  no  poorer  than  he  was 
when  he  inherited  it,  but  the  community  is  poorer  by  the 
hundred  thousand  plus  the  waste  of  time  and  plus,  what  is 
of  greater  consideration,  losses  due  to  demoralization  of  the 
particular  business  caused  by  the  ignorant  and  inefficient  ef- 
forts of  the  man  who  failed. 

In  a  sentimental  way  the  interest  of  the  community  in 
the  welfare  of  its  citizens  is  recognized  and  asserted  orator- 
ically  and  rhetorically,  but  the  time  is  speedily  coming  when 
this  interest  will  be  asserted  practically.  For  a  long  time 
the  community  has  maintained  expensive  fire  departments 
to  prevent  or  minimize  losses  by  fire ;  in  time  it  will  see  the 
wisdom  of  maintaining  departments  to  prevent  or  mini- 
mize losses  by  failures.  As  it  is  now  this  country  does  its 
best  to  aggravate  the  conditions  that  produce  failures;  laws 


WHAT  IS  A  FAIR  PRICE?  267 

are  framed  that  forbid  men  doing  the  things  that  prevent 
failures;  recklessness,  wastefulness,  inefficiency  in  business 
are  encouraged,  and  when  failure  results,  as  result  it  must, 
an  easy  way  of  escape  from  individual  responsibility  is  pro- 
vided by  the  bankruptcy  law,  which  says  to  the  man  who 
has  lost  his  own  and  his  creditors'  money  and  who,  by  his 
reckless  methods,  has  caused  far  greater  loss  to  men  trying 
to  do  business  on  a  sound  basis,  "You  need  not  pay  your 
debts,  you  are  free  to  find  other  creditors  and  start  in  all 
over,  to  fail  again — and  as  often  as  you  please." 

The  time  will  come  when  the  community  will  take  at 
least  as  much  care  to  prevent  failures  as  fires,  and  when  a 
failure  does  come  it  will  sift  to  the  bottom  the  question  of 
responsibility. 

It  may  yet  he  made  a  crime  to  sell  goods  below  cost. 


XIX 


As  a  matter  of  law  now,  officers  of  corporations  who 
knowingly  sell  the  products  of  their  company  below  cost 
run  two  risks. 

1.  In  those  states  that  have  statutes  against  selling 
goods  below  cost  to  injure  a  competitor,  they  run  the  risk 
of  prosecution. 

So  far,  little  attention  has  been  paid  to  these  statutes. 
It  is  such  a  common  practice  for  one  competitor  to  sell  his 
goods  at  or  below  cost,  even  give  away  substantial  quan- 
tities, to  secure  trade — especially  in  localities  where  some 
competitor  has  a  foothold — that  the  average  business  man 
learns  with  surprise  there  is  any  law  against  so  doing.  But 
these  laws  may  come  to  life;  they  may  be  invoked  any 
day  by  a  competitor  who  feels  aggrieved,  and  when  in- 
voked they  are  apt  to  be  enforced. 

2.  But  there  is  a  far  wider  and  entirely  different 
liability  for  selling  goods  below  cost,    tt  is  the  common 


268  THE  NEW  COMPETITION 

law  liability  of  ih^  agent  who  wastes  the  goods  of  his 
principal.  0^ 

Every  ma|i  knows  that  if  a  clerk  in  a  shop  wilfully 
destroys  som^  of  the  goods  he  is  liable  to  his  employer  for 
the  full  value. 

If  the(derk  gives  away  goods  he  is  also  liable  for  the 
value.  J^-he  sells  them  at  a  price  less  than  that  fixed  by 
his  emf^yer,  he  is  liable  for  the  difference. 

If  the  clerk  is  told  the  cost,  and  told  to  get  the  best  price 

he  can  over  the  cost,  and  he  sells  below  cost,  he  is  liable 

for  the  difference. 

■^    C  The  average  clerk  in  a  country  store,  who  has  never 

<t   -mudied  law,  knows  all  these  things,— self-evident  proposi- 

^      tions  of  common  sense  and  honesty. 

It  is  not  so  commonly  realized  by  officers  of  large  cor- 
porations that  the  same  propositions  apply  to  them.  The 
very  magnitude  of  their  transactions  tends  to  make  them 
feel  they  can  do  as  they  please  with  the  products  of  their 
company. 

Hence  it  is  a  common  thing  to  hear  officers  of  corpora- 
tions say  they  are  taking  business  below  cost. 

This  may  be  necessary  at  times  and  under  exceptional 
conditions,  but  the  officer  of  a  company  who  knowingly 
sells  its  products  at  less  than  cost  runs  the  risk  of  a  suit 
on  behalf  of  the  stockholders,  and  in  such  a  suit  he  would 
be  obliged  to  convince  a  court  that  each  sale  below  cost 
was  for  the  benefit  of  the  company,  and  if  the  court  should 
think  otherwise  he  would  have  to  make  good  the  difference. 

Under  existing  unscientific  and  vicious  competitive 
conditions,  it  may  seem  necessary  to  sell  goods  below  cost 
at  periods,  or  in  localities,  or  to  particular  parties;  and  so 
confused  are  our  notions  regarding  what  is  right  in  com- 
mercial conduct  that  it  is  probable  most  courts  would  decide 
in  favor  of  officials  who  answered  that  they  were  obliged 
to  sell  below  cost  because  others  were  doing  the  same  thing 


WHAT  IS  A  FAIR  PRICE?  269 

— to  meet  competition;  that  is  the  principal  excuse  offered 
for  all  the  tricky,  vicious,  wasteful  things  done  in  business, 
"I  am  doing  only  what  others  are  doing." 

That  excuse  will  not  hold  forever;  it  is  losing  force 
rapidly. 

Any  day  a  wise  court,  in  a  suit  on  behalf  of  stockhold- 
ers against  officials  for  selling  below  cost  and  causing  a 
large  loss,  may  say,  "Because  officers  of  other  companies 
were  doing  the  same  thing  is  no  excuse  for  you;  you 
cannot  even  introduce  evidence  to  show  that  others  did  the 
same  thing;  the  only  question  before  the  court  is  whether 
there  was  anything  in  the  conditon  of  your  own  company 
which  made  it  necessary  to  dispose  of  its  assets  at  a  large 
loss;  it  is  no  answer  for  you  to  say  you  wished  to  hold 
trade,  extend  trade,  or  do  something  else  to  your  com- 
petitors; only  the  stockholders,  the  owners,  have  the  right 
to  say  whether  they  wish  to  lose  money  doing  the  things 
you  wished  to  do;  as  agents  and  employes,  it  is  your  duty 
first  of  all  to  conserve  the  assets  of  the  company  and  not 
give  them  away  in  pursuance  of  a  competitive  policy  you 
happen  to  think  good  because  aggressive." 

If  these  notions  were  firmly  lodged  in  the  minds  of  all 
representatives  and  officials,  the  seeming  need  for  selling 
below  cost,  as  a  competitive  device,  would  disappear,  be- 
cause they  would  be  afraid  to  yield  to  it,  and  because  they 
would  see  that  in  the  long  run  it  does  not  pay. 

Selling  below  cost  would  happen  only  when  other  con- 
ditions compelled  it,  conditions  such  as, 

Over-supply  due  to  honest  mistakes  of  judgment. 

Under-demand  due  to  conditions  no  one  could  foresee, 
such  as  depressions,  changes  in  styles,  tastes,  etc.,  discov- 
eries, inventions,  etc.,  etc.,  any  one  of  which  may  suddenly 
affect  the  prosperity  of  an  entire  industry. 

Conditions  affecting  the  financial  strength  of  the  par- 
ticular company  to  carry  the  goods. 


270  THE  NEW  COMPETITION 

Conditions  of  the  goods  themselves  affecting  their 
desirability. 

♦     *     * 

But  even  these  conditions  could  be  controlled  in  large 
measure  by  scientific  cooperation  within  an  industry. 

Scientific  cooperation  would  mean  the  reduction  of 
losses  to  a  minimum  by  the  development  of  more  scientific 
forecasting  in  business,  and  scientific  adjustment  of  sup- 
ply to  demand,  or  rather  the  scientific  treatment  and  control 
to  a  maximum  degree  of  both  supply  and  demand. 

Where  the  accumulated  experience  and  the  systemati- 
cally classified  knowledge  of  an  entire  industry  is  at  the 
command  of  the  smallest  individual  producer  and  where 
cooperative  action  compels  the  individual  to  be  guided  by 
the  science  of  his  industry,  then  will  the  losses  of  the  indi- 
vidual be  reduced  to  a  minimum,  and  under  no  circum- 
stances will  the  individual  be  permitted  to  say,  "I  am  selling 
at  a  loss  because  the  other  fellow  is,'*  or  to  use  the  other 
phrase  so  commonly  heard,  and  which  is  the  battle  cry  of 
the  old  competition, 

"I  can  stand  it  so  long  as  you  can," 


CHAPTER  XVII 

THE  TRUST   PROBLEM— SEGREGATION   VS.   DISINTE- 
GRATION 


"What  shall  we  do  with  the  trusts?" 

"Smash  'em,'*  the  man  in  the  street  cries. 

"Regulate  them,"  the  more  conservative  citizen  re- 
sponds. 

"Put  them  under  government  control,"  the  politician 
suggests. 

But  if  an  independent  competitor  of  one  of  the  great 
trusts  should  be  asked  the  question,  if  a  thinking  man,  he 
would  quickly  answer : 

"Compel  them  to  make  money." 

"What!" 

"I  mean  what  I  say;  as  an  independent  all  I  ask  is  that 
the  big  corporation  be  compelled  by  law  to  make  money." 

"Why,  what  do  you  mean?" 

"That  if  they  make  money  I  can.  In  fact,  I  can  make 
money  when  they  lose — if  they  don't  lose  too  much." 

"But  they  do  make  money." 

"Yes  and  no — yes  where  they  have  a  control — no  where 
they  compete  with  me  or  some  other  independent." 

"I  don't  understand " 

"Neither  does  the  public — that's  just  the  trouble.  If 
the  public  did  understand  instead  of  crying  for  disintegra- 
tion of  the  trusts,  which  is  a  senseless  proposition,  the  cry 

271 


272  THE  NEW  COMPETITION 

would  be  for  segregation,  which  is  the  solution  of  the  prob- 
lem." 


II 


Everybody  knows  what  disintegration  means,  it  means 
dissolution — "smashing  'em,"  in  the  language  of  the  street. 

The  Standard  Oil  Company  has  been  disintegrated  into 
some  thirty-five  more  or  less — chiefly  less — independent 
and  supposedly  competing  companies. 

The  Tobacco  Company  has  been  disintegrated  into  four- 
teen more  or  less  independent  and — supposedly — competing 
units. 

The  net  result  to  the  public  so  far  has  been  higher  prices 
for  many  of  the  products  of  the  one  and  no  lower  prices  for 
any  of  the  products  of  the  other. 

The  net  result  to  many  small  stockholders  has  been 
losses. 

The  net  result  to  "insiders" — the  men  against  whom 
public  clamor  was  raised — has  been  golden  opportunities 
for  profit  in  the  buying  and  selling  of  subsidiary  stocks 
long  before  stockholders  and  the  public  could  possibly  form 
any  accurate  notions  of  their  real  value. 

To  illustrate — when  the  Standard  Oil  Company  of  New 
Jersey — the  trust — was  dissolved  by  order  of  court  the 
stockholders  of  that  company  received  pro  rata  fractional 
interests  in  all  the  subsidiary  companies,  and  for  the  first 
time  thousands  of  men  and  women  all  over  the  country 
learned  of  the  existence  of  those  thirty-five  companies.  By 
no  possibility  could  these  scattered  stockholders  form  ac- 
curate opinions  regarding  the  values  of  the  fractional  shares 
issued  to  them ;  only  the  men  in  control  of  the  industry  were 
in  a  position  to  know.  What  has  been  the  result?  The 
stockholders  and  public  have  sold  and  bought  in  ignorance, 
losing  both  ways.    Take  the  Standard  Oil  Company  of  In* 


THE  TRUST  PROBLEM  273 

diana,  one  of  the  subsidiary  companies.  It  was  capitalized 
at  $i,cxx),ooo;  the  amount  cut  no  figure  so  long  as  all  its 
stock  was  held  by  the  trust,  but  when  the  trust  was  dissolved 
its  many  stockholders  received  each  his  fractional  pro  rata 
share  in  the  Indiana  Company.  There  was  a  general  im- 
pression the  stock  of  this  company  was  worth  far  more 
than  par^  but  how  much?  Only  the  insiders  could  tell. 
As  a  result  many  stockholders  who  were  in  the  dark  sold 
their  interests  at  less  than  a  fifth  of  what  the  stock  sold  for 
inside  a  few  weeks. 

A  few  days  ago  the  Indiana  Company  voted  to  increase 
its  capital  stock  from  one  million  dollars  to  thirty  millions 
and  to  distribute  the  $29,000,000  to  its  stockholders  as  a 
stock  dividend,  and  it  now  appears  that  the  company  is 
earning  at  least  ten  millions  a  year,  or  33  1-3  per  cent,  on 
the  new  capitalization,  but  it  is  stated  in  the  press  the  "Of- 
ficers refuse  to  give  any  information  on  this  point."  ^ 

Disintegration  of  trusts  and  large  corporations  simply 
because  they  are  large  is  a  senseless  proposition,  because 
both  are  here  to  stay  in  some  form,  both  are  evolutions, 
products  of  modern  industrial  conditions;  like  the  labor 
unions,  they  are  simply  forms  of  cooperation  and,  rightly 
used,  ought  to  be  of  value  to  the  community  as  factors  in 
production. 

The  Sherman  law  was  passed  in  1890.  For  more  than 
ten  years  few  attempts  were  made  to  enforce  it  against  large 
corporations.  Then,  in  response  to  popular  clamor,  due  to 
many  flagrant  abuses,  came  a  period  of  indiscriminate 
"trust-busting."  Already  there  are  signs  of  reaction;  the 
Dendulum  is  swinging  back;  it  is  found  the  Sherman  law 

*  Courts  should  provide  in  decrees  of  dissolution  that  before  the 
plan  of  reorganization  and  redistribution  of  securities  is  announced, 
detailed  information,  verified  by  independent  auditors,  regarding  each 
subsidiary  company  should  be  sent  to  all  stockholders  and  published, 
so  that  no  man  would  have  an  advantage  in  buying  or  selling  the 
securities  affected. 


274  THE  NEW  COMPETITION 

hits  large  and  small,  good  and  bad,  labor  unions  and  capital 
unions  alike.  At  best  the  law  is  a  destructive  measure,  and 
the  demand  now  is  for  constructive  legislation.  But  this 
demand  so  far  has  not  assumed  any  very  definite  shape. 


Ill 


What  does  "segregation"  mean? 

The  disintegration  of  a  trust  means  its  dissolution  into 
its  component  parts  and  the  destruction  of  all  ties  between 
those  parts,  segregation  means  simply  such  an  isolation  of 
all  parts  as  will  enable  competitors  and  the  public  to  see 
clearly  what  each  part  is  doing,  without  destroying  the  ties 
that  bind  the  parts  into  one  whole. 

Under  segregation  the  trust,  or  large  corporation,  re- 
mains intact,  but  in  the  operation  of  its  different  companies 
or  branches  and  in  producing  and  selling  its  different  lines 
of  products  it  is  required  to  keep  its  accounts  and  make  its 
reports  in  such  a  manner  that  each  will  stand  by  itself  and 
be  subject  to  easy  investigation  and  ready  comparison. 

Segregation  is  entirely  a  matter  of  accounting  and  man- 
agement, it  does  not  necessarily  affect  ownership. 

The  proposition  is  simple  because  every  well-managed 
corporation  already  segregates  its  different  units  and 
branches  in  its  accounting,  but  no  outsider  has  access  to 
the  facts. 

The  conduct  of  a  large  corporation  may  be  so  unfair 
and  oppressive  as  to  call  for  disintegration,  forfeiture  of 
charter,  as  a  punishment;  but,  generally  speaking,  segre- 
gation will  accomplish  far  more  and  with  less  loss  to 
innocent  parties. 


THE  TRUST  PROBLEM 


275 


IV 


The  production  of  a  finished  steel  product,  such  as  a 
steel  building,  may  be  roughly  schematized  as  follows: 


■•lltakl*  iroa  CAStlnc* 


nttnly  fiav 
rallroaOs 


Prodnot tuyi  ttMl  A«pet  nd  pUtos  and  fatrleatM 

•teel  \TlAg»9j  Imildlng*,  eto.  Th*  fabrloator  Is  to  th* 
rolling  Bill  it^X  a  oarpenttr  li  to  Um  Innbcr  yard  and 
planine  alll. 

*The  Bessemer  process  is  also  used  by  rolling  mills,  but  not  to 
the  same  extent  as  open-hearth,  and  there  is  a  combination  of  the  Bes- 
semer and  open-hearth,  called  the  duplex  process,  but  it  would  need- 
lessly complicate  the  diagram  to  show  every  step  and  every  line  of 
relation. 

Mngots  are  "pig-steel,"  so  to  speak,  but,  unlike  pig-iron,  they  are 
not  allowed  to  cool,  but  are  immediately  rolled  and  cut  into  billets, 
blooms  and  slabs,  which  are  the  raw  material  for  various  rolled  and 
forged  steel  products. 

Reading  up,  each  factor  is  wholly  dependent  upon  the 
preceding.  E  must  buy  shapes  and  plates  from  D ;  D  must 
buy  billets,  slabs,  and  blooms  from  C ;  C  must  buy  pig-iron 
from  B ;  B  must  buy  ore  from  A. 

Reading  down  there  is  not  the  same  degree  of  depend- 
ence save  in  the  case  of  the  mine,  A,  which  has  but  one 
customer,  B,  the  blast  furnace.  The  others  have  several 
outlets  for  their  production.  As  between  D  and  E  the 
rolling  mill  turns  out  so  many  different  products  from  tin 


276  THE  NEW  COMPETITION 

plate  and  wire  rods  to  rails  that  it  is  virtually  independent 
of  the  fabricator  and  may  deal  with  him  quite  arbitrarily. 

Many  mills  do  not  consider  it  worth  while  to  equip  for 
the  making  of  shapes  and  plates  for  structural  steel  work, 
notwithstanding  the  fact  an  immense  tonnage  is  used — 
some  2,000,000  tons  annually. 

These  varying  degrees  of  interdependence  are  incen- 
tives to  combination  and  consolidation — imperative  reading 
up  the  line,  diminishing  in  strength  reading  down.^ 


Under  existing  competitive  conditions  the  fabricator 
feels  the  imperative  need  of  close  alliance  with  some  rolling 
mill.  Unless  the  rolling  mill  owns  an  open-hearth  furnace 
it  knows  it  is  not  in  a  position  to  compete  with  mills  that 
do.  The  open-hearth  furnace  wants  its  own  blast  furnace 
and  the  blast  furnace  wants  its  own  ore  supply. 

Reading  down  any  one  factor  may  or  may  not  have  an 
interest  in  a  succeeding  factor — ownership  is  not  vital,  but 
may  be  profitable. 

Reading  up  it  may  be  a  question  of  existence;  reading 
down  it  is  more  a  matter  of  profit,  of  "branching  out"  to  se- 
cure business,  and,  as  everyone  knows,  "branching  out"  is 
often  disastrous.  The  blast  furnace  that  buys  an  open- 
hearth  furnace  with  a  view  to  making  steel  in  addition  to 

*Mr.  Axel  Sahlin,  of  the  Millom  Works,  told  the  Iron  and  Steel 
Institute:  "As  for  the  struggling  independent  blast  furnace,  marketing 
a  product  of  Bessemer  iron,  often  through  the  agency  of  brokers,  and 
the  equally  crippled  maker  of  standard  grade  steel,  who  looks  to  the 
same  intermediary  and  to  the  warrant  yards  for  his  raw  material,  I 
venture  the  prediction  that  many  of  these  will  soon  be  driven  to  the 
wall,  unless  they  sensibly  combine  forces,  each  plant  becoming  a  coop- 
crating  link  in  the  unbroken  chain  of  processes  which  turn  the  ore  into 
merchantable  steel." — (Journal  of  the  Iron  and  Steel  Institute,  1901, 
vol.  i.,  p.  163).  See  "The  Trust  Movement  in  British  Industry,"  H.  W. 
Macrosty  (p.  329). 


THE  TRUST  PROBLEM  277 

making  pig-iron  may  come  to  grief,  while  the  purchase  of 
a  blast  furnace  by  an  open-hearth  company  in  order  to  get 
its  raw  material  to  better  advantage  may  be  a  very  sound 
proposition,  the  motives  are  fundamentally  different,  results 
in  the  latter  case  may  be  quite  accurately  estimated  and 
forecast,  while  in  the  former  they  are  largely  guess-work, 
a  gamble  on  the  question  whether  a  company  organized  to 
make  and  sell  pig-iron  can  make  and  sell  steel  successfully. 

To  make  the  point  clearer,  a  blast  furnace  might  very 
naturally  buy  a  coal  mine  to  get  the  coal  and  coke  it  needs, 
but  there  is  no  more  reason  why  a  coal  company  should  buy 
a  blast  furnace  than  why  it  should  buy  a  railroad  or  the 
business  of  any  other  large  customer. 

It  is  one  thing  for  a  given  industry  to  buy  a  plant  from 
which  it  must  get  raw  material,  it  is  a  fundamentally  differ- 
ent thing  for  an  industry  to  buy  a  plant  to  which  it  sells  its 
finished  product.  A  railroad  company  may  buy  a  coal  mine 
to  get  the  coal  it  burns,  but  a  coal  mine  should  not  buy  a 
railroad  in  order  to  sell  it  the  coal  it  uses — as  an  economic 
proposition  the  first  purchase  may  be  entirely  sound,  the 
second  is  unsound;  the  first  might  lead  to  abuses,  the  sec- 
ond would  be  sure  to. 


VI 


In  response  to  these  incentives  to  combine  and  consoli- 
date in  the  vertical  line — integration — a  number  of  large 
steel  companies  in  this  country  own  all  the  factors  from  and 
including  A  to  E. 

While  only  a  comparatively  few  large  companies  own  all 
the  factors  from  A  to  E  a  great  many  companies  own  or 
control  two  or  more  of  the  factors.  The  tendency  in  the 
iron  and  steel  world — as  in  every  other  well-organized  in- 
dustry— is  so  strong  for  a  company  to  protect  itself  by  se- 


278  THE  NEW  COMPETITION 

curing  control  of  the  source  of  its  raw  material  that  few 
stand  entirely  alone. 

So  far  as  the  U.  S.  Steel  Corporation  is  concerned  it 
simply  does  on  a  larger  scale  what  other  companies  do  on 
a  lesser. 

To  carry  the  argument  a  step  farther  let  us  make  an- 
other diagram: 


I. 

2. 

A. 

MINE 

— :—  Same  — :— 

B. 

1 
BLAST-FURNACE 

— :—  Same  — :— 

C. 

D. 
E. 

OPEN-HEARTH 
FURNACE 

ROLLING-MILL 

FABRICATORS 

— . —  Same  — : — 
— : —  Same  — : — 
— :—  Same  — :— 

VII 


Line  A  would  be  extended  to  the  number  of  mines  in 
operation;  line  B  to  the  number  of  blast  furnaces;  and  so 
on ;  each  horizontal  line  being  carried  out  to  include  all  the 
mines,  furnaces,  mills  and  fabricators  in  active  operation. 

The  number  varies  from  time  to  time.  The  sign  of 
division  is  used  between  units  on  the  horizontal  lines  be- 
cause each  is  normally  more  or  less  antagonistic  to  the 
others ;  there  is  no  necessary  interdependence  as  in  the  ver- 
tical line ;  all  combinations  are  more  or  less  forced  and  arti- 
ficial. 

In  schematizing  any  particular  industry  the  divisions  in 
the  vertical  line — the  letters — are  necessarily  limited  by  the 
state  of  the  art  to  the  number  of  process-steps  from  first 
raw  material  to  last  finished  product. 


THE  TRUST  PROBLEM  279 

In  every  industry  there  is  a  stage  of  refinement  in  some 
last  product  that  calls  for  the  cooperation  of  the  maximum 
number  of  preceding  processes. 

These  successive  steps,  each  calling  for  a  highly  organ- 
ized industry  in  itself,  may  be  four  or  six,  or  even  eight  or 
ten,  but,  whatever  the  number  it  is  limited  by  the  state  of 
the  art. 

Whether  steel  is  made  in  one  country  or  another  the 
processes  from  ore  to  a  given  finished  product  are  substan- 
tially the  same  in  number,  and  they  remain  the  same 
whether  one  large  company  operates  them  all  or  whether 
each  is  operated  as  an  independent  factor. 

While,  therefore,  a  few  letters  suffice  to  mark  the 
process  steps  in  any  given  industry  from  nature  to  the  last 
and  most  highly  finished  product,  varying  only  with  ad- 
vances in  the  art,  the  numerals,  representing  the  number  of 
units  in  operation  at  the  moment  the  table  is  compiled,  vary 
with  conditions  that  affect  demand. 


VIII 


The  perpendicular  is  the  line  of  normal  combination,  the 
horizontal  is  the  line  of  normal  competition. 

A  mine  does  not  compete  with  a  blast  furnace  but  with 
all  other  mines  that  are  trying  to  sell  ore  to  the  same 
furnaces. 

Many  of  these  propositions  may  read  like  truisms  but 
they  are  essential  to  the  argument. 

Generally  speaking,  combinations  in  the  perpendicular 
line  are  natural  and  some  inevitable,  while  those  along  the 
horizontal  are  artificial;  the  one  is  for  the  purpose  of  con- 
trolling costs,  the  other  for  the  purpose  of  controlling 
prices — both  may  fail  of  their  objects. 

Combinations  in  the  perpendicular  line  are  made  to  en- 


2  8o  THE  NEW  COMPETITION 

able  the  consolidation  to  compete  to  better  advantage ;  com- 
binations along  the  horizontal  line  are  usually  made  for  the 
express  purpose  of  suppressing  competition. 

The  public  is,  and  for  a  long  time  has  been,  opposed  to 
combinations  along  the  horizontal  line ;  it  is  beginning  to  see 
that  combinations  in  the  perpendicular  line  may  be  far  more 
effective  in  restraining  trade  and  developing  monopolies. 

A  combination  of  all  the  furnaces  in  the  country  would 
have  the  power  for  a  time  to  fix  any  price  it  pleased  for  pig- 
iron — short  of  cost  of  importation — ^but  this  power  would 
not  last  long,  its  arbitrary  exercise  would  prove  an  incentive 
to  competition.  Monopolies  along  the  horizontal  line  are 
seldom  more  than  partial  and  are  always  short-lived,  with 
reactions  that  send  prices  below  cost. 

The  monopoly  that  results  from  combination  in  the  per- 
pendicular line — integration — is  a  very  different  proposi- 
tion, it  is  not  due  to  any  control  of  the  industry,  as  a  whole, 
but  to  the  ability  of  the  combination  to  kill  off  competitors 
instead  of  buying  them,  as  in  the  other  case. 


IX 


If  a  number  of  saw  mills  combine  the  people  object  be- 
cause they  foresee  an  advance  in  the  price  of  lumber,  but  if 
one  saw  mill  buys  a  tract  of  timber  the  people  applaud  the 
good  business  judgment  displayed,  without  stopping  to  real- 
ize that  the  latter  step  may  mean  the  elimination  of  compet- 
ing mills  more  effectually. 

"But  we  get  our  lumber  cheaper,"  the  people  urge.  Per- 
haps, perhaps  not.  The  purchase  of  the  timber  may  cut  off 
the  supply  of  logs  to  the  other  mills  and  the  price  of  lum- 
ber may  be  advanced  at  once  in  the  locality  served.  Or  the 
mill  with  timber  may  cut  prices  for  a  time  to  put  the  others 
out  of  business  then  recoup  all  reductions. 


THE  TRUST  PROBLEM  281 

Consolidations  along  horizontal  lines  seldom  worry  the 
independent  competitor ;  if  the  consolidation  advances  prices 
he  trails  along  making  more  than  before ;  if  it  lowers  prices 
to  drive  him  out  of  business,  in  the  great  majority  of  in- 
stances he  can  stand  the  fight  as  long  as  it  can — as  against 
combinations  in  the  same  line  independents  usually  increase 
in  numbers  and  flourish,  flourish  by  reason  of  their  better 
and  more  economical  management,  by  virtue  of  the  personal 
element  that  is  such  a  powerful  factor  in  getting  and  hold- 
ing trade. 

As  against  a  combination  in  the  perpendicular  line  the 
independent  is  at  a  disadvantage. 

All  other  things  equal  it  matters  little  to  a  blast  furnace 
that  buys  its  ore  whether  it  competes  against  a  dozen  in- 
dependent furnaces  or  a  number  in  consolidation — as 
pointed  out  it  may  profit  more  with  the  consolidation  in  ex- 
istence, but  if  one  furnace  secures  control  of  a  mine,  the 
position  of  every  furnace  that  has  no  mine  is  seriously  af- 
fected. 

Why? 

Simply  because  the  combination  is  in  a  position  to  sell 
pig-iron  at  cost  or  less  than  cost  to  down  competitors,  and 
make  its  money  from  its  mine. 

So  long  as  A,  B,  C,  D,  and  E  are  independent  units 
in  the  production  and  sale  each  of  its  own  products,  no  one 
can  sell  at  less  than  cost  for  any  length  of  time  and  sur- 
vive, but  when  all  are  united  under  one  ownership  the  con- 
solidation is  in  a  position  to  lose  money  indefinitely  on  one 
or  more  of  its  units — departments — until  its  competitors  in 
that  horizontal  line  are  driven  to  the  wall,  all  the  time  more 
than  recouping  its  losses  in  other  departments. 


282  THE  NEW  COMPETITION 


The  independent  blast  furnace  has  nothing  to  fear  from 
a  combination  between  mine  and  furnace  if  neither  is  per- 
mitted to  live  off  the  other. 

What  is  true  of  mine  and  furnace  is  true  of  all  combina- 
tions in  the  vertical  line — the  independent  competitor  stands 
no  chance  unless  the  operations  of  the  consolidated  units 
are  so  segregated  that  he  can  ascertain  just  what  he  is 
obliged  to  meet. 

Take  the  case  of  the  independent  steel  fabricator. 
There  are  a  great  many  in  the  country;  he  is  to  be  found 
in  every  city  of  any  size,  and  comparatively  few  have  con- 
nections with  rolling  mills.  Most  of  them  buy  the  steel 
they  use — shapes  and  plates — in  the  open  market. 

In  bidding  upon  work  they  are  obliged  to  figure  their 
material  at  market  price — say  i.io  per  hundred  pounds  or 
%22  per  ton,  Pittsburg. 

Competing  with  these  independent  companies  are  sev- 
eral companies  that  are  owned  by  or  allied  with  rolling 
mills. 

The  following  illustrates  the  situation : 


' 

I. 

2. 

3- 

g 

A. 

MINE 
1 

•l 

B. 
C. 

BLAST-FURNACE 

OPEN-HEARTH 
1 

'' 

D. 
E. 

ROLLING-MILL 
FABRICATOR 

One  Cor- 
poration 

1      1 

Fabricator 
(independent) 

THE  TRUST  PROBLEM  283 

Independent  3  is  obliged  to  buy  its  steel  in  the  open 
market,  possibly  of  rolling  mills  i  and  2. 

Rolling  mill  2  is  obliged  to  buy  its  raw  material  in  the 
open  market,  possibly  from  furnaces  owned  by  i. 

It  is  plain  the  independent  (3)  can  exist  only  so  long 
as  combinations  i  and  2  compel  their  fabricating  depart- 
ments to  figure  steel  at  market  price  in  making  all  estimates 
and  to  make  no  bids  except  at  a  fair  profit. 

It  is  equally  plain  that  after  disposing  of  independent 
fabricator  3  the  fight  for  control  may  result  in  combination 
I  selling  all  the  products  of  its  mill  (D),  and  of  the  fabri- 
cating department  (E),  at  cost,  while  still  making  money 
in  units  A,  B,  and  C,  and  so  compel  2  to  shut  down. 

In  short,  the  large  corporations — there  are  a  number 
most  efficiently  organized — which  own  or  control  all  the 
process-steps  of  finished  steel  productions,  are  in  a  position 
to  absolutely  dominate  the  industry;  independents  in  any 
one  branch  live  only  by  their  sufferance. 


XI 

An  actual  instance  will  illustrate  the  point  we  are  mak- 
ing. 

A  short  time  ago  a  contract  was  let  for  the  fabricating 
and  erection  of  the  steel  work  on  a  large  building  in  a 
western  city.  About  6,000  tons  of  structural  steel  was  re- 
quired. It  was  a  contract  worth  fighting  for  and  com- 
petition was  keen. 

At  the  time  the  steel  was  supposed  to  be  selling  at  i.io 
per  hundred  pounds,  or  $22.00  per  ton.  On  this  basis  a 
very  close  estimate  on  the  completed  structure  was  $36.00 
per  ton.  The  contract  was  let  for  under  $32.50,  or  $3.50 
per  ton  below  cost — figured  with  steel  at  i.io. 

In  discussing  these  figures  it  clearly  appeared  that  the 


284  THE  NEW  COMPETITION 

company  that  secured  the  work  was  not  in  a  position  to  do 
it  cheaper  than  other  competitors;  on  the  contrary,  as  re- 
gards certain  items  of  cost,  it  was  in  a  position  of  some 
disadvantage. 

The  competition  quickly  narrowed  down  to  two  com- 
panies, each  backed  by  a  mill. 

The  purchaser  negotiated  openly  with  the  bidders  to  get 
still  lower  figures,  pitting  one  against  the  other. 

As  the  figures  dropped  below  $36.00  per  ton  most 
bidders  were  out  of  the  race;  they  could  not  pay  $22.00  a 
ton  for  material  and  get  out  even.  It  was  no  longer  a 
contest  between  independent  fabricating  companies  as  to 
which  could  do  the  work  the  cheaper,  but  a  competition  be- 
tween two  rolling  mills  as  to  which  was  willing  to  sell  the 
raw  material  the  cheaper,  and  it  was  evident  that  the  fabri- 
cating company  which  finally  secured  the  contract  must 
have  had  an  understanding  whereby  it  secured  the  steel  at 
not  to  exceed  .90,  or  $18.00  per  ton;  otherwise  it  will  lose 
heavily  on  the  building  and  if  it  pays  .90  it  can  not  hope 
to  do  better  than  come  out  even — in  other  words  at  $18.00 
per  ton  for  material  the  company  doing  the  work  makes 
little  or  nothing  and  the  profit,  if  any,  goes  to  the  mill; 
there  is  probably  no  profit  to  either  in  the  contract. 

But  whether  there  is  or  is  not  a  profit  is  not  material 
in  this  connection;  the  point  here  is  that  the  combination 
between  mill  and  fabricating  company  shut  out  absolutely 
the  competition  of  independent  companies;  they  had  no 
chance. 

So  far  as  competition  and  the  public  and  fair  prices  are 
concerned  it  makes  little  difference  whether  a  rolling  mill 
gives  a  rebate  on  price  paid  for  steel  or  whether  the  rail- 
roads give  a  rebate  on  the  freight  on  the  steel,  the  net  re- 
sult is  a  secret  and  an  unfair  advantage  to  the  favored  com- 
pany as  against  others. 


THE  TRUST  PROBLEM  285 


XII 


The  above  is  not  an  exceptional  instance;  on  the  con- 
trary, in  the  demoralized  condition  of  all  branches  of  the 
steel  industry  that  prevailed  in  the  latter  half  of  191 1,  the 
contract  cited  was  simply  one  of  many  taken  under  like 
conditions.  In  their  eagerness  to  get  tonnage,  the  mills 
resorted  to  every  device  known  to  the  old  competition,  and, 
naturally,  each  helped  the  company  allied  to  it  as  against 
independents. 

To  every  protest  the  mills  replied: 

"Isn't  this  the  competition  the  people  want?  Suppose 
we  do  sell  particular  companies  material  at  cost  and  charge 
others  a  profit,  isn't  that  old-fashioned,  cut-throat  com- 
petition?" 

XIII 

That  is  old-fashioned  cut-throat  competition,  but  it  is 
death  to  the  independent  and,  in  the  long  run,  detrimental 
to  the  community,  for  if  logically  extended  it  means  monop- 
oly of  this  and  that  branch  of  the  industry  by  the  few  pow- 
erful survivors. 

Furthermore  it  must  not  be  overlooked  that  between 
certain  letters  in  the  perpendicular  line  there  is  the  big  item 
of  freight,  especially  important  between  A  and  B — mine  and 
blast  furnace.  A  combination  in  this  line  that  also  owns 
carrying  facilities  may  save  or  make  enough  on  transporta- 
tion to  enable  it  to  sell  all  its  products  at  competitors'  cost 
and  still  make  money. 

The  independent  fabricators  are  caught  between  the  up- 
per and  nether  mill-stones,  between  the  rolling  mills  from 
which  they  are  obliged  to  buy  and  the  structural  steel  com- 
panies owned  by  the  mills,  with  which  they  have  to  compete. 


286  THE  NEW  COMPETITION 

A  prominent  lawyer  connected  with  a  large  company 
was  asked: 

"Given  a  corporation  that  controls  two  or  more  units  of 
product,  has  it  the  right  to  sell  one  unit  at  cost  to  beat  its 
competitors  in  that  particular  line?" 

"You  mean—?" 

"I  mean,  has  a  steel  company  that  owns  mines,  furnaces, 
rolling  mills,  and — say — a  fabricating  company,  the  right 
to  do  fabricated  work  at  less  than  cost  to  beat  independent 
fabricators  that  have  no  connection  with  mills?" 

"That  is  competition." 

"Are  you  sure?" 

"If  the  purchaser  gets  his  building  at  less  than  cost,  who 
is  going  to  complain?" 

"How  about  the  independent  that  stands  no  show  at  all 
and  is  forced  out  of  business?" 

"That's  his  look-out ;  if  the  people  want  *cut-throat'  com- 
petition the  company  that  has  no  mill  back  of  it  is  going  to 
get  hurt." 

"But  does  not  that  mean  monopoly  in  the  end  by  the 
few  big  companies  that  own  both  mills  and  fabricating  com- 
panies ?" 

"That  can't  be  helped.  If  the  big  company  can  do  the 
work  cheaper  then  it  is  bound  to  survive." 

"But  it  can't  do  fabricated  work  any  cheaper,  not  so 
cheaply  as  the  independent  who  is  well  situated  locally;  the 
big  company  can  show  a  profit  in  its  structural  department 
only  by  charging  against  that  department  a  low  price  for  its 
steel." 

"What  if  it  does?" 

"That  means  it  charges  its  own  subsidiary  company  one 
price  and  charges  the  independents  so  much  more  they  are 
forced  out  of  business.  The  big  company  uses  the  profits  it 
makes  in  other  lines  to  get  control  of  the  structural  busi- 


THE  TRUST  PROBLEM  287 

"Isn't  that  competition?" 

"Not  the  sort  of  competition  the  people  will  tolerate 
when  they  understand." 

"Ha!  it  is  the  sort  of  competition  every  merchant  in- 
dulges in  when  he  makes  a  run  on  a  particular  line  of  goods 
at  less  than  cost  to  drive  out  some  competitor." 

"Perhaps  the  day  of  that  kind  of  competition  is  passing 
— furthermore  all  that  the  individual  does  the  corporation 
may  not  do." 

"What  is  your  remedy?" 

"Segregate  the  departments  of  every  large  corporation 
in  such  a  way  that  every  competitor  against  any  department 
may  know  exactly  what  he  is  up  against." 

"Segregation — ^that  is  ridiculous." 

"But  less  disastrous  than  disintegration." 


XIV 

Let  us  make  the  point  clearer. 

The  head  of  a  lumber  company  that  owns  its 

1.  Timber 

2.  Saw  mills 

3.  Planing  mills 

4.  Lumber-yards. 

insists  he  has  the  right  to  sell  the  product  of  any  one  fac- 
tor at  cost  or  less  than  cost  if  he  pleases  and  make  his  profit 
from  the  other  units,  that  his  right  to  do  so  is  the  very 
foundation  of  competition,  and  if  he  does  so  and  drives 
competitors  of  the  particular  unit  out  of  business  that  is 
their  misfortune,  not  his  fault. 

On  first  impression  nearly  everyone  will  agree  with  these 
notions  for  they  not  only  prevail  at  the  present  time,  but 
they  have  been  accepted  as  orthodox  by  economists  since  the 


288  THE  NEW  COMPETITION 

days  of  Adam  Smith,  and  by  commercial  peoples  the  world 
over  so  long  as  we  have  any  record  of  commercial  conduct. 

This  rule  of  commercial  conduct — like  many  another 
equally  "brutal" — had  its  origin  in  times  and  conditions 
when  the  hand  of  each  man  was  raised  against  his  brother, 
when  trade  was  almost  entirely  a  matter  of  gaining  and 
pressing  every  advantage,  of  winning  by  fair  means  or  foul ; 
it  was  never  a  just  rule,  but  so  long  as  the  contest  was  be- 
tween individual  and  individual,  and  only  the  individual 
trader  was  ruined,  the  interest  of  the  community  was  not 
aroused  to  the  relentless  and  oppressive  character  of  the 
practice. 

It  is  the  unparalleled  development  of  organized  trade 
and  industry,  the  growth  of  what  is  termed  "big  business," 
which  followed  inevitably  the  use  of  steam  and  electricity, 
that  has  demonstrated  the  vicious  nature  of  many  ancient 
trade  maxims. 

The  people  feel,  and  it  is  beginning  to  be  clearly  per- 
ceived by  many  thinkers,  that  the  large  corporation  cannot 
be  permitted  to  do  things  individuals  have  done  from  time 
immemorial,  not  because  what  is  wrong  in  the  conduct  of  a 
corporation  is  right  in  the  conduct  of  an  individual — not 
at  all;  but  because  the  consequences  of  the  acts  of  the  one 
are  so  far-reaching;  the  individual  kills  off  only  his  neigh- 
bor in  trade,  the  corporation  kills  off  an  army  of  traders. 

In  earlier  days  the  influence  of  a  very  rich  man  or  a 
powerful  association  for  either  good  or  bad  did  not  extend 
far,  means  of  communication  and  transportation  were  too 
slow ;  nowadays  it  is  different,  what  a  rich  man  or  powerful 
company  does  in  London  is  felt  in  New  York;  a  merchant 
in  St.  Petersburg  may  upset  the  market  in  Paris ;  men  are 
no  longer  free  to  do  what  they  like  because  what  they  do 
affects  so  many  more  that  the  many  protest  and  make  their 
protests  heard. 


THE  TRUST  PROBLEM  289 


XV 


To  return  to  the  lumber  company  that  owns  timber, 
mills  and  yards,  many  intelligent  men  will  argue  it  has  the 
right,  moral  and  economic,  to  sell  (a)  timber,  (b)  rough 
lumber,  or  (c)  finished  lumber,  at  any  price  it  pleases,  at 
cost,  if  it  pleases,  for  the  express  purpose  of  driving  out  of 
business  a  competitor  in  the  particular  line. 

But  not  so  many  intelligent  men  will  insist  it  has  the 
right  to  use  its  resources  to  take  contracts  for  putting  up 
buildings  at  less  than  the  cost  of  erection  for  the  purpose 
of  driving  out  of  town  all  carpenter  contractors  and  con- 
trolling that  work  for  itself. 

And  still  fewer  intelligent  men  will  urge  that  it  has  the 
right  to  establish  a  paint  shop  and  do  painting  for  less  than 
cost  in  order  to  control  that  trade;  and  still  fewer  that  it 
has  the  right  to  start  a  household  furnishing  store  and  sell 
household  goods  at  less  than  cost  to  close  up  all  other  stores 
in  the  town ;  and  still  fewer  that  it  has  the  right  to  sell  gro- 
ceries, clothing,  automobiles,  jewelry  at  less  than  cost  for 
the  purpose  of  controlling  all  those  trades. 

Yet  one  thing  leads  to  another  and  no  logical  line  of  de- 
marcation can  be  drawn.  If  the  saw-mill  can  own  its  own 
finishing  factory  and  make  and  sell  below  cost  the  interior 
finish  of  a  house,  there  is  no  reason  in  the  world  why  it 
should  not  sell  furniture  and  carpets  below  cost. 

In  short  the  supposed  "right"  to  sell  anything  below 
cost  cannot  be  made  to  turn  upon  whether  the  particular  ar- 
ticle is  or  is  not  related  to  some  other  article  made  or 
handled  by  the  same  man  or  company. 

If  a  steel  company  that  owns  mines,  furnaces,  mills,  and 
fabricating  companies  can  put  up  a  steel  building  at  less  than 
the  cost  of  fabrication  to  control  the  fabricating  industry, 
it  can  build  brick  or  wooden  buildings  at  less  than  cost,  it 


290  THE  NEW  COMPETITION 

can  make  and  sell  flour  at  less  than  cost — in  short  it  can 
use  its  resources  and  the  profits  it  makes  in  certain  depart- 
ments to  demoralize  as  many  different  businesses  and  ruin 
as  many  different  competitors  as  it  pleases. 


XVI 


Let  us  bring  the  matter  home  to  the  individual. 

A  man  owns  a  tract  of  land,  he  is  lucky  enough  to  strike 
oil,  over  night  he  becomes  a  millionaire  many  times  over, 
he  feels  an  ambition  to  be  the  biggest  man  in  the  adjoining 
town,  he  starts  out  to  control  every  enterprise  in  the  town — 
the  bank,  the  saw-mill,  the  lumber-yard,  the  coal-yard,  the 
woolen  mill,  and  the  principal  stores. 

There  are  plenty  of  towns  where  things  like  this  have 
happened. 

Some  of  the  owners  have  no  desire  to  go  out  of  busi- 
ness, they  will  not  sell.  He  uses  the  money  he  is  making 
from  his  oil-field  to  start  rival  establishments  and  he  sells 
at  cost  and  less  than  cost  until  he  either  ruins  his  competi- 
tion or  compels  them  to  accept  his  terms. 

For  the  present  he  has  the  legal,  but  has  he  the  moral  or 
economic  right  to  do  this? 

Your  answer  to  that  question  will  depend  upon  whether 
you  have  any  philosophy  of  trade  beyond  stereotyped  tradi- 
tions and  superficial  current  notions — whether  you  think  or 
only  think  you  think. 

There  is  a  feeling  that  this  sort  of  competition  is  not 
right,  the  sentiment  against  it  is  growing  in  spite  of  argu- 
ments to  the  contrary,  in  spite  of  traditions,  in  spite  of  all 
the  theories  of  the  economists  of  the  last  century. 

The  reason  why  this  sentiment  is  growing,  why  convic- 
tions are  changing,  is  because  within  the  last  twenty  years 


THE  TRUST  PROBLEM  291 

combinations  have  exercised  those  supposed  rights  ruthlessly 
to  compel  competitors  to  sell  out  or  go  out  of  business. 

If  a  coterie  of  men  wished  to  buy  up  a  number  of  plants 
and  form  a  combination,  or  if  a  large  corporation  wished 
to  buy  up  certain  smaller  competitors  the  mode  of  procedure 
was  first  to  make  an  offer,  then  if  the  offer  was  not  accepted, 
start  a  ruinous  competition  by  selling  at  cost  and  less  thp.n 
cost  until  the  weaker  company  was  forced  to  beg  for  terms. 

So  many  thousands  of  men  and  hundreds  of  towns  and 
localities  have  been  disastrously  affected  by  just  this  "com- 
petition" that  it  is  not  surprising  the  feeling  against  it  is 
strong. 

XVII 

Many  remedies  have  been  proposed  for  the  trust  prob- 
lem— federal  incorporation,  federal  supervision,  federal  reg- 
ulation of  prices  and  profits,  dissolution,  but  after  years  of 
close  association  with  competitors  of  the  trusts,  who  are 
also  large  buyers  from  them,  the  writer  has  never  heard  any 
very  loud  demand  for  most  of  these  remedies. 

Dissolution — no  one  who  has  any  knowledge  of  industry 
wants  that.  Federal  regulation  of  prices  and  profits  is 
dismissed  as  chimerical.  Federal  incorporation  or  super- 
vision— ^yes,  if  you  please,  but  then  what? 

What  is  to  be  the  practical  result  of  any  step  proposed? 

That  is  the  question  put  to  every  theorist  on  the  sub- 
ject. 

The  man  who  has  his  fortune,  his  business,  his  livelihood 
at  stake  wants  a  practical  answer,  he  wants  to  know  how 
the  proposed  remedy  will  affect  him. 

Again  and  again  the  writer  has  heard  from  independ- 
ents who  are  fighting  for  existence  against  the  trust  the  one 
cry:  "We  don't  care  how  big  the  trust  is  or  how  many 
departments  it  operates  in  competition  with  us.     We  can 


292  THE  NEW  COMPETITION 

take  care  of  ourselves.  On  an  even  footing  we  can  always 
get  business  away  from  it.    All  we  ask  is  fair  play." 

The  one  way  to  get  fair  play  is  to  insist  no  company 
shall  do  business  in  competition  at  a  loss.  Compel  every 
integrated  company  to  show  up  the  operations  of  each  de- 
partment in  such  a  manner  there  will  be  no  chance  for 
unfair  competition,  and  if  it  appears  it  is  selling  its  own 
departments  material  at  less  than  it  charges  buyers,  compel 
it  to  rebate  to  every  customer  the  excess — or  three  times 
the  excess  by  way  of  punishment. 

Those  demands  if  carried  cut  would  mean  a  vast  and 
beneficial  extension  of  the  open  price  policy  and  a  solution 
of  the  trust  problem  with  a  minimum  of  interference  with 
individual  initiative  and  freedom. 

The  machinery  required  would  be  simple  as  compared 
with  some  of  the  elaborate  schemes  now  before  Congress. 
The  precise  steps  to  be  taken  are  discussed  in  the  last  chap- 
ter. 


CHAPTER   XVIII 

THE  LABOR  PROBLEM— INTEGRATION  VS.  AGGREGA- 
TION 

I 

For  the  labor  spent  and  capital  invested,  no  two  enter- 
prises yield  the  same  returns.  That  being  true,  it  would 
seem  to  follow  that  in  no  two  enterprises  should  the  share 
received  by  labor — wages, — and  the  share  received  by  the 
owner — profits — be  the  same — unless  labor  prefers  to  ac- 
cept a  fixed  and  uniform  wage  and  relinquish  all  claim  to 
an  interest  in  the  business  it  has  helped  establish. 

But  labor  is  not  willing  to  do  that.  As  has  been  shown, 
the  trend  of  modern  thought  and  recent  legislation  is 
toward  the  assertion  and  recognition  of  labor's  claim  to  an 
equitable  interest  in  the  industry. 

The  only  consistent  theory  of  workmen's  compensa- 
tion and  pension  laws  is  that  the  industry — not  the  em- 
ployer-^owts  the  laborer  something. 

The  only  logical  theory  at  the  basis  of  the  strike  and 
fight  against  "scabs"  is  that  employees  have  certain  rights 
to  secure  which  they  may  not  only  strike  but  prevent  others 
from  taking  their  places. 

The  labor  movement  is  based  upon  the  fundamental 
notion  that  labor  has  a  proprietary  interest  in  whatever  it 
helps  create,  and  while  this  interest  is  not  explicitly  recog- 
nized by  employers,  it  is  implicitly  admitted  in  the  settle- 
ments of  most  labor  controversies. 

293 


294  THE  NEW  COMPETITION 

Furthermore,  it  is  quite  apparent  that  unless  labor  does 
act  upon  this  theory  it  is  in  no  position  to  protest  if  "locked 
out,"  or  if  employers  discharge  high-priced  help  and  sub- 
stitute low-priced.    If  labor  has  no  interest  it  has  no  voice. 


II 


But  if  it  has  an  interest,  what  then? 

The  question  is  crucial,  for  the  answer  is  fraught  with 
consequences. 

If  the  men  employed  in  a  particular  factory  have  an 
interest  therein,  their  share  of  the  returns  from  the  busi- 
ness should  vary  with  the  prosperity  of  the  business. 

They  may  be  guaranteed — as  many  salesmen  are — a 
minimum  salary  or  wage,  but  over  and  above  this  minimum 
they  should  take  some  chances  on  fluctuations  in  the  re- 
turns. 

As  a  matter  of  fact,  they  do  take  those  chances  now; 
when  business  is  dull,  their  wages  are  reduced  or  they  are 
worked  half  time ;  if  the  business  fails,  their  losses  may  be 
greater  than  the  owner^s,  they  may  lose  all  they  have  saved. 
In  truth,  no  class  in  the  community  assumes  the  risks  labor 
assumes,  since  it  stakes  its  all  on  every  venture. 

To  a  certain  extent  the  interest  of  the  employee  is  being 
recognized  in  profit-sharing  arrangements,  and  he  takes  his 
profits  and  his  losses  pro  rata  with  owners,  but,  generally 
speaking,  labor  occupies  this  inconsistent  position : 

It  claims  an  interest  in  the  enterprises  for  which  it 
works,  denying  to  the  employer  absolute  control,  but  re- 
fuses to  take  the  chances  incidental  to  such  interest. 

It  not  only  refuses  to  take  any  chances,  but  it  demands 
a  flat  rate  of  compensation  far  above  a  minimum  wage,  a 
rate  of  compensation  that  may  have  no  relation  whatsoever 


THE  LABOR  PROBLEM  295 

to  the  particular  industry,  but  one  that  is  often  based  upon 
returns  in  other  and  wholly  unrelated  enterprises. 


Ill 


In  the  labor  world  wage  scales  are  fixed  by  conferences 
and  councils  of  men  who  make  no  pretense  to  investigate 
the  ability  of  an  individual  enterprise  to  pay  the  rate. 

Whether  an  employer  is  making  money  or  not,  he  must 
pay  the  union  scale.  A  railroad  may  be  in  the  hands  of  a 
receiver;  it  matters  not,  it  must  meet  the  demands  of  the 
unions  or  they  will  order  strikes. 

Labor  as  now  organized  cannot  do  otherwise ;  it  cannot 
advance  wages  on  A  and  lower  them  to  B ;  it  cannot  fix 
the  wages  of  firemen  on  the  New  York  Central  lines  at  so 
much  and  a  lower  scale  on  the  Pennsylvania,  the  Erie,  the 
Wabash,  although  the  earnings  of  these  roads  and  the 
work  on  each  differ  so  much  that  men  may  prefer  to  work 
on  one  for  less  than  they  get  from  another. 

Unions  are  in  a  difficult  and  ultimately  untenable  posi- 
tion; they  are  obliged  to  treat  with  employers  on  the  theory 
they  have  labor  to  sell,  not  on  the  theory  that  each  em- 
ployee has  an  interest  in  the  business. 

Collective  bargaining  is  the  only  form  of  contract  feas- 
ible ;  the  unions  cannot  deal  with  individuals ;  they  must  lay 
down  rules  and  make  wage  scales  for  classes;  if  they  at- 
tempt to  do  otherwise  the  fabric  of  unionism  as  now  built 
up  falls  to  the  ground. 

The  attitude  of  employers  is  quite  as  inconsistent.  They 
deny  their  employees  have  any  interest — ^much  less  any 
voice — in  the  business,  and  in  the  same  breath  refuse  to 
meet  and  treat  with  the  heads  of  employees'  unions. 

If  labor  is  a  commodity,  like  coal,  to  be  bought  by  each 
employer  as  cheaply  as  he  can,  employees  not  only  have 


296  THE  NEW  COMPETITION 

the  right  to,  but  should  organize  to  get  the  best  wages  they 
can;  their  union  leader  is  their  representative  to  make  a 
bargain. 

The  employer  who  refuses  to  treat  with  a  union  and  at 
the  same  time  denies  any  interest  in  the  business  to  his 
employees  has  impaled  himself  on  both  horns  of  the  di- 
lemma. 

But  the  employer  who  recognizes  the  broad  economic 
proposition  that  all  who  work  to  build  up  a  business  have 
an  interest  therein,  not  only  is  in  a  position  to,  but  neces- 
sarily must  say  to  all  outsiders,  "You  cannot  interfere  be- 
tween this  business  and  the  men  who  are  working  to  make 
it  a  success  and  say  what  any  man  or  set  of  men  shall 
receive,  because  you  do  not  know  anything  about  the  busi- 
ness or  the  profits  we  may  make  this  year." 

Under  such  circumstances  the  men  themselves  would  be 
the  first  to  resent  any  attempt  by  outsiders — especially  out- 
siders in  the  employ  of  competitors — to  say  they  must  take 
a  fixed  sum  per  day  in  lieu  of  a  share  in  the  profits  at  the 
end  of  the  year. 

Employers  deny  the  interest  of  employees  in  the  busi- 
ness, but  as  against  unions  act  as  if  the  employees  had  such 
an  interest. 

Unions  assert  the  interest  of  employees  in  the  busi- 
ness, but  as  against  employers  act  as  if  employees  had  no 
such  interest. 

The  trouble  lies  in  an  imperfect  recognition  on  both 
sides  of  a  fundamentally  sound  theory  of  labor  organiza- 
tion, a  theory  based  upon  the  economic  proposition  that  all 
who  help  to  build  up  and  maintain  a  business  have  an  in- 
terest therein. 

If  that  proposition  is  sound,  organization  of  labor  must 
be  on  lines  radically  different  from  existing. 

For  purpose  of  illustration  we  give  here  the  labor 
scheme  of  a  given  industry.    To  include  all  classes  of  em- 


THE  LABOR  PROBLEM 


297 


ployees  would  make  the  scheme  needlessly  complicated  for 
the  purposes  of  the  argument. 

The  same  scheme  in  outline  applies  to  any  enterprise. 


IV 


RAILWAY   EMPLOYEES 


N.  Y.  C.  R. 

R. 

Penn.  R.  R. 

Santa  Pe  R.  R. 

and     so     on, 

- 

including    all 

c 

the    roads   in 

'•^ 

the  country. 

1 

Trackmen 

V 

: 

Trackmen     : 

Trackmen     : 

Trackmen 

li 

Switchmen 

: 

Switchmen   : 

Switchmen  : 

Switchmen 

i 

Op 

Trainmen 

. 

Trainmen     : 

Traimnen     : 

Trainmen 

i 

0  w 

r 

Firemen 

-:- 

Firemen        : 

Firemen        : 

Firemen 

"rt 

Engineers 

: 

Engineers     : 

Engineers     : 

Engineers 

0 

■i 

V 
Conductors 

. 

Conductors  : 

Conductors  : 

Conductors 

1. 

P 

and  so  on  through  all 

Union  along  horizontal  lines = 

classes  of  employees. 

Aggregation. 

It  is  plain  at  a  glance  that  two  fundamentally  different 
modes  of  combination  are  possible: 

Combination  in  the  vertical  line — integration. 

Combination  in  the  horizontal  line — aggregation. 

The  lines  of  cleavage  depend  upon  the  lines  of  organ- 
ization. 

All  labor  unions  are  organized  along  horizontal  lines, 
each  is  an  aggregate  of  individuals  who  follow  the  same 
occupation,  and  their  power  depends  upon  numbers — the 
underlying  theory  is  combative,  not  cooperative.  The  lines 
of  cleavage  are  horizontal,  destructive  to  cooperation  and 
harmony  within  the  industry. 

*  Compare  this  with  scheme  of  industrial  cooperation  on  page  264. 


298  THE  NEW  COMPETITION 

The  firemen  of  all  the  railroads  in  the  country  are 
banded  together,  and  the  engineers  of  all  the  roads  are  in  a 
brotherhood,  but  the  fireman  and  the  engineer  who  ride  in 
the  same  cab  are  not  united ;  in  fact,  their  unions  are  neces- 
sarily more  or  less  antagonistic ;  one  may  support  the  other 
in  a  demand  for  higher  wages  and  a  threat  to  strike,  but 
only  as  a  matter  of  policy. 

Ask  a  brakeman  or  a  switchman  what  he  thinks  of  the 
demand  of  the  engineers  for  increased  pay,^  and  he  will 
give  you  his  opinion  in  language  hardly  fit  for  publication, 
but  his  union  will  keep  silent,  because  it  expects  to  put  in 
its  own  demand  later  on,  when,  in  turn,  the  engineers  will 
be  expected  to  lend  their  support. 

It  is  needless  to  say  a  fireman  on  a  road  in  California 
has  nothing  in  common  with  a  fireman  on  a  road  in  Maine ; 
the  work  is  not  the  same,  the  fuel  is  not  the  same,  the  cost 
of  living  is  not  the  same,  yet  the  two  are  linked  together 
each  as  against  not  only  the  company  that  employs  him, 
but  against  the  engineer  and  conductor  who  run  the  train 
on  which  he  fires.  His  wages  and  conditions  of  employ- 
ment are  fixed  by  men  he  never  sees,  who  live  in  States 
thousands  of  miles  from  where  he  lives;  he  works  when 
they  tell  him  to,  strikes  when  they  tell  him  to,  and  accord- 
ingly as  he  is  told  he  will  or  will  not  take  his  engineer's 
place  if  the  latter  strikes  for  better  wages. 


The  condition  is  fundamentally  unsound,  and  the 
stronger  the  unions  become  the  more  clearly  do  they  dem- 
onstrate the  weakness  of  the  theory  of  combination  by  ag- 
gregation. 

Just  as  was  found  in  discussing  industrial  combina- 

^  Formulated,  April,  1912. 


THE  LABOR  PROBLEM  299 

tions/  it  is  integration  in  the  vertical  line  that  is  normal 
and  powerful  to  the  extent  of  even  being  a  menace  to  non- 
integrated  units.  To-day  labor  unions  spread  over  the 
country  like  so  many  thin  strata  of  slate,  the  larger  they 
are  the  greater  the  danger  of  breakage;  the  lines  of  cleav- 
age are  so  well  marked  that  many  "shrewd"  employers 
have  little  trouble  in  exciting  dissensions  that  split  for  a 
time  the  superimposed  layers,  and  array  union  against 
union. 

Integration  is  granite  in  texture;  it  is  the  fusing  of 
each  industrial  and  commercial  unit  into  one  homogeneous 
whole. 

Integration  starts  normally  from  within;  aggregation 
starts  usually  from  without.  The  outsider,  the  profes- 
sional agitator,  has  no  interest  in  integrating  a  plant  or  a 
factory,  in  welding  all  its  employees,  from  day  laborer  to 
owner,  together  in  one  harmonious  body — that  sort  of 
a  union  makes  no  place  for  him. 

The  outsider  finds  his  opportunity  and  profitable  em- 
ployment in  associations  along  horizontal  lines,  in  huge  ag- 
gregates, each  with  its  corps  of  officials. 

Per  contra,  the  insider,  the  man  who  has  something  at 
stake  in  the  success  of  a  given  plant,  has  no  interest  in 
uniting  with  workmen  employed  in  a  competing  plant ;  that 
is  folly. 

As  things  now  are,  with  labor  organized  in  large  ag- 
gregates on  horizontal  lines,  a  union  of  plumbers,  steam- 
fitters,  plasterers,  carpenters,  engineers — of  any  given  trade 
— formulates  its  demands  for  increased  wages;  these  de- 
mands have  no  relation  whatever  to  the  special  work  or  the 
needs  of  the  employees  of  a  particular  contractor  or  com- 
pany, nor  do  they  take  into  consideration  the  ability  of  a 
particular  employer  to  meet  the  demands. 

If  the  demands  are  not  complied  with,  strikes  are  called, 

*  See  page  263. 


300  THE  NEW  COMPETITION 

not  so  much  for  the  purpose  of  coercing  employers  directly, 
as  for  the  purpose  of  so  inconveniencing  the  entire  com- 
munity that  the  public  will  compel  employers  to  yield,  or 
arbitrate,  which  up  to  the  present  time  has  been  but  an- 
other manner  of  yielding. 

These  methods  are  crude  and  primitive,  and  will  surely 
give  place  to  ways  that  are  rational  and  scientific.  The 
strike  has  no  place  in  a  civilized  community,  neither  has 
the  lockout — they  are  the  weapons  of  brute  man. 

But  so  long  as  labor  organizes  in  aggregates  the  chief 
strength  of  which  is  brute  force,  the  strike  and  the  lock- 
out will  be  with  us,  and  in  more  and  more  violent  forms, 
with  the  inevitable  result  that  employers  and  employees 
will  get  farther  and  farther  apart,  feeling  between  the  two 
will  become  more  and  more  bitter;  even  now  the  friendli- 
ness, the  cordiality  that  should  exist  are  gone,  and  gone 
long  ago. 

The  employee  acknowledges  no  loyalty  except  to  his 
union;  the  employer  acknowledges  no  interest  in  his  work- 
men other  than  that  of  a  purchaser  of  labor  at  fixed  rates, 
and  no  obligation  to  them  other  than  the  law  imposes. 

While  integration  of  labor  is  the  natural  development 
of  .organization,  and  aggregation  the  artificial,  conditions 
have  been  such  that  employees  have  been  compelled  to  or- 
ganize along  the  arbitrary  and  artificial. 

Employers  have  so  stubbornly  refused  to  admit  their 
workmen  to  any  voice,  much  less  interest,  in  the  business, 
that  they  could  not  organize  within;  employers  have  been 
so  short-sighted  they  have  systematically  discouraged  that 
sort  of  organization.  Hence  the  opportunity  of  the  out- 
sider, the  professional  agitator. 

But  employers  are  becoming  a  little  wiser,  and  the  men 
are  beginning  to  see  that  those  employed  in  one  factory  in 
one  State  have  no  very  vital  interest  in  striking  to  support 
the  demands  of  men  employed  in  a  competing  factory  in  an 


THE  LABOR  PROBLEM  301 

adjoining  State;  they  are  beginning  to  see  that  the  real 
interest  of  each  body  is  in  making  their  own  factory  so 
prosperous  it  can  afford  to  pay  more  to  all  connected  with  it. 


VI 


Under  existing  conditions  all  negotiations  are  conducted 
between  employers  on  one  side  and  employees  on  the 
other  in  a  spirit  of  sharp  antagonism.  Every  controversy 
over  wages  is  preceded  by  preposterous  claims  and  state- 
ments, and  by  charges  and  counter-charges  of  the  bitterest 
nature.  Nothing  is  left  undone  and  unsaid  to  inflame  both 
sides. 

Every  spring  the  situation  becomes  very  acute  in  the 
building  trades  in  large  cities,  in  coal-mining  districts,  and 
between  railroads  and  their  employees. 

The  public  that  bears  the  cost  tamely  submits  to  the 
■following  programme: 

Demands  by  employees. 
Refusals  by  employers. 
Strikes  with  violence. 
Arbitration  and  adjustment. 
Advance  in  wages. 

Advance  in  prices  far  more  than  sufficient  to  cover  the 
higher  wages. 

Peace  for  a  few  months. 
Repeat. 

For  weeks  and  months  the  papers  are  filled  with  ac- 
counts of  rioting,  slugging,  and  shooting,  entire  communi- 
ties are  terrorized,  men,  women,  and  children  are  wounded 
and  killed.  Meetings  are  held  at  which  agitators  and  anar- 
chists breathe  hatred  and  defiance  toward  capitalists,  toward 
the  g-overnment,  toward  society  itself. 


302  THE  NEW  COMPETITION 

Is  it  conceivable  that  after  such  experiences  the  men, 
no  matter  if  all  their  demands  are  conceded,  can  return 
to  work  with  the  loyal  devotion  they  should  have  to  the 
industry  and  property  in  which  they  are  far  more  inter- 
ested than  distant  stockholders  and  upon  which  they  de- 
pend for  a  livelihood  ? 

Every  observer  knows  that  only  the  most  intelligent 
are  able  to  overcome  the  feeling  of  hatred  so  systematically 
engendered,  many  of  the  more  ignorant  actually  take  de- 
light in  injuring  and  destroying  tools  and  property  in  a 
spirit  of  "getting  even"  for  real  or  fancied  wrongs. 


VII 

At  this  moment  the  country  is  trembling  on  the  brink 
of  a  great  railroad  strike. 

,  On  April  22  the  following  letter  was  sent  the  chief  of 
the  Brotherhood  of  Locomotive  Engineers,  which  has  a 
membership  of  over  70,000. 

"Dear  Sir:  We  understand  that  negotiations  between 
the  Brotherhood  of  Locomotive  Engineers  and  the  man- 
agers' committee  of  the  eastern  railroads  have  been  defi- 
nitely broken  off,  and  that  the  engineers  are  likely  to  with- 
draw forthwith  from  the  service. 

"If  this  is  unfortunately  the  fact  it  is  evident  that  a 
grave  situation  has  arisen  which  threatens  most  serious 
consequences  to  the  public.  In  this  emergency  we  are  im- 
pelled by  the  sense  of  duty  to  tender  our  friendly  offices 
to  the  contending  parties,  in  the  hope  that  some  means  may 
be  found  to  adjust  the  matters  in  dispute  without  the  ca- 
lamity of  a  general  strike. 

"We  are  sending  an  identical  letter  to  Mr.  J.  C.  Stuart, 
chairman  of  the  committee  of  railroad  managers." 

MARTIN  A.  KNAPP, 
Presiding  Judge,  U.  S.  Commerce  Court. 
CHARLES  P.  NEILL, 
U.  S.  Commissioner  of  Labor. 


THE  LABOR  PROBLEM  303 


VIII 


"The  mediation  of  federal  officials  came  immediately 
after  the  refusal  of  the  managers  of  fifty  railroads  con- 
cerned to  concede  the  engineers'  demands  for  an  18  per 
cent,  increase  in  wages,  when  Chief  Warren  S.  Stone,  of 
the  Brotherhood  of  Locomotive  Engineers,  had  announced 
that  in  view  of  this  refusal  a  strike  of  engineers  would 
go  into  effect  within  thirty-six  hours/' 

"Although  Chief  Stone  had  a  few  minutes  before  de- 
clared that  his  fifty  associates  on  the  engineers'  committee 
would  proceed  to-night  to  their  headquarters  to  prepare 
for  a  strike  within  thirty-six  hours,  he  was  impressed  with 
the  letter  to  the  extent  that  he  amended  the  order,  declar- 
ing the  committee  would  remain  intact  here  to-night  to 
consider  the  situation. 

"He  said:  *No  organization  is  so  strong  it  can  fail  to 
hearken  to  an  appeal  from  representatives  of  the  federal 
government,'  and  declared  he  would  place  the  proposition 
before  the  engineers'  committee  with  the  recommendation 
that  it  be  accepted." 

"Officials  of  the  local  Chicago  division  of  the  Brother- 
hood of  Locomotive  Engineers  last  night  said  all  traffic, 
including  passenger,  freight,  and  yard,  within  the  strike 
zone,  would  be  stopped  simultaneously. 

"  The  men  are  "sore"  because  of  the  inequality  of 
wages,'  he  said.  'Some  of  the  lines  in  the  east  run  side  by 
side  for  miles.  The  engineers  of  one  line  will  be  receiv- 
ing 4  cents  a  mile  and  those  of  the  other  line  43^  cents  a 
mile.'  "  1 

In  threatening  to  "tie  up"  52  per  cent,  of  the  railway 
traffic  of  the  country  unless  their  demands  are  complied 
with,  the  union  of  engineers  is  acting  in  open  defiance  of 
the  Sherman  law. 

Imagine  what  would  occur  if  railroad  companies  com- 
bined and  threatened  to  stop  all  traffic  unless  wages  were 
reduced  or  freight  rates  advanced — the  rage  of  the  pub- 

*From  the  daily  press. 


304  THE  NEW  COMPETITION 

lie,  the  super-rage  of  the  press — it  is  all  quite  unthinkable. 

Why  should  the  public  submit  without  protest  to  the 
threat  of  the  engineers  to  stop  every  train  in  the  country 
unless  their  wages  are  advanced? 

The  public  has  only  an  indirect  and  a  comparatively 
small  interest  in  the  increase  of  wages  demanded,  even 
if  it  should  lead  to  a  slight  increase  in  rates. 

But  the  public  has  a  direct  and  very  great  interest  in 
the  threat  to  stop  traffic  for  any  cause,  and 

//  social  progress  is  not  a  sham  and  a  delusion,  the 
time  will  come  speedily  when  the  representatives  of  the 
public  will  not  beg  as  a  favor  that  traffic  be  not  stopped, 
but  will  command  sharply  and  peremptorily  that  traffic  go 
on  without  interruption,  and  that  controversies  between 
individuals  and  classes  of  individuals  be  adjusted  without 
inconvenience  to  the  public  at  large. 

That  several  thousand  men  in  combination  should 
threaten  to  stop  the  commerce  of  ninety  millions  and  have 
the  power  to  do  so,  is  a  proposition  so  grotesque  it  does 
not  seem  possible  a  civilized  people  at  the  beginning  of  the 
twentieth  century  would  tolerate  it — yet  it  is  not  only  tol- 
erated but  meekly  accepted  as  a  condition  to  be  dealt  with 
as  gingerly  as  a  small  boy  handles  a  giant  cracker. 


IX 


The  engineers  have  scarcely  finished  presenting  their 
claims  when  the  firemen,  through  their  national  organiza- 
tion, begin  formulating  theirs,  and  so  it  goes,  an  endless 
round,  as  a  rule  no  two  unions  of  national  importance 
formidating  demands  at  the  same  time} 

*  Seven  men  of  national  reputation,  composing  the  Arbitration  Com- 
mission which  is  to  decide  if  the  fifty-two  railroads  in  the  Eastern 
section  of  the  country  shall  increase  the  pay  of  the  engine  drivers,  will 
m^et  to-morrow  morning  at  the  Oriental  Hotel,  Manhattan  Beach. 


THE   LABOR  PROBLEM  305 

Each  union  enlists  the  sympathy  of  the  public  by  mak- 
ing it  appear  that  its  fight  is  with  the  companies,  whereas 
it  is  a  self-evident  proposition  that  every  increase  in  the 
cost  of  operation  is  borne  in  the  end  by  the  public. 

The  unions  are  even  cynical ;  when  the  great  anthracite 
coal  strike  was  settled  a  few  years  ago  by  giving  the  men 
an  advance  of  so  much  per  ton,  it  was  done  with  the 
understanding  the  companies  should  profit  by  the  agita- 
tion by  advancing  the  price  of  coal  far  more  than  the  added 
cost  per  ton.  It  was  a  matter  of  sober  and  serious  dis- 
cussion how  much  both  sides  could  get  out  of  that  patient 
beast — the  public — before  it  would  kick.  This  spring  the 
controversy  is  renewed  with  like  results.  ^ 

But  the  public  is  becoming  restive;  it  is  beginning  to 
see  that  however  ardently  it  takes  side  with  this  union  and 
that,  somehow  it  comes  out  a  loser  in  two  ways — it  suffers 
most  of  the  inconveniences  and  losses  of  strikes,  and  in 
the  end  pays  in  higher  prices  more  than  all  advances  in 
wages. 

The  public  is  not  only  beginning  to  see  these  things, 
but  it  is  beginning  to  inquire  if  something  may  not  be  done 
to  put  an  end  to  these  periodical  "conflicts  between  capital 
and  labor" — as  the  phrase  goes. 

There  is  but  one  way  to  bring  about  peace  and  har- 
mony and  that  is  to  promote  the  integration  of  each  indus- 
try from  top  to  bottom. 

On  their  decision  depends  whether  the  railroad  workers  shall  divide 
among  themselves  annually  an  additional  $7,500,000.  It  also  will  be  a 
signal  to  other  labor  organizations  whether  they  shall  move  for  more 
pay.  Already  the  railway  firemen  have  made  demands  for  increases 
which  would  amount  to  $20,000,000  annually. — N.  Y.  Herald,  July  14. 

^  Circulars  sent  out  by  the  great  coal  operators  to-day  will  bear 
the  glad  tidings  to  the  general  consumer  that  the  price  of  domestic  an- 
thracite coal  has  been  advanced  25  cents  a  ton;  and  as  a  result  the 
general  public  may  have  the  satisfaction  of  knowing  that  it,  and  not 
the  operators,  will  pay  the  nominal  increase  of  10  per  cent,  recently 
granted  to  the  striking  miners — that  and  a  little  more.  The  little  more 
amounts  to  about  $6,000,000  this  year. — From  N.  Y.  Times,  May  24th, 
1912. 


3o6  THE  NEW  COMPETITION 

To  return  to  the  controversy  now  on  between  the  fifty 
odd  railroads  and  the  engineers,  the  following  suggestions 
are  offered  with  the  firm  conviction  they  would  tend  to  a 
clearing  up  of  the  present  unsatisfactory  conditions  that 
exist  between  the  roads  and  their  employees  and  ultimately 
lead  to  an  integration  of  the  latter. 

When  any  class  of  employees,  high  or  low,  organized  or 
not  organized,  asks  an  advance  in  wages,  the  demand  af- 
fects (a)  the  company,  (b)  all  other  employees,  inasmuch 
as  an  advance  to  one  class  may,  usually  does,  mean  a  dim- 
inution of  the  fund  available  for  advances,  (c)  shippers  and 
all  patrons  of  the  road  since  every  increase  in  cost  of  opera- 
tion may  mean  either  an  increase  in  rates  or  a  bar  to  re- 
duction in  rates,  (d)  the  public,  since  every  increase  in  cost 
of  operation  means  a  reduction  of  the  fund  available  for 
betterment  of  service. 

All  these  classes  are  so  intimately  concerned  in  every 
proposition  that  means  an  advance  in  the  cost  of  opera- 
tion they  should  be  consulted  at  the  outset  whenever  such 
a  project  is  under  consideration.  As  it  is,  only  (a)  the 
company  takes  any  interest  in  a  demand  for  increased 
wages  until  a  strike  is  threatened. 

Shippers  sit  back  unconcerned  until  the  roads  propose 
to  advance  rates,  then  they  are  aroused,  but  too  late  as 
they  will  ultimately  find,  for  the  time  to  act  is  when  things 
are  being  done  with  the  approval  of  the  public  and  repre- 
sentatives of  the  government  that  must  sooner  or  later  lead 
to  either  advances  in  rates  or  such  curtailment  of  opera- 
tions, improvements  and  extensions,  as  will  place  shippers 
at  a  serious  disadvantage. 

X 

The  interest  of  all  classes  concerned,  employees,  patrons, 
the  public,  can  be  aroused  in  this  way : 


THE  LABOR  PROBLEM  307 

1.  When  any  one  class  of  employees  asks  for  higher 
wages^  let  each  company  address  a  formal  request  to  all 
classes,  whether  organized  or  not,  to  formulate  their 
demands,  if  they  have  any,  and  present  them  by  a  date 
named. 

2.  Decline  to  pass  upon  the  demands  of  any  one  class 
until  all  have  filed  theirs  or  announced  they  have  none  to 
present. 

3.  When  the  demands  of  all  are  in,  tabulate  and  ascer- 
tain the  total — the  gross  amount  that  would  be  added  to 
cost  of  operation. 

4.  Call  an  open  meeting  at  which  all  classes  interested 
shall  be  represented:  (a)  the  company  which  is  to  disburse 
the  amount;  (b)  employees,  both  those  who  demand  a 
share  of  the  amount  and  those  who  have  filed  no  claims 
but  whose  future  opportunities  to  get  advances  will  be 
affected  by  the  allowance;  (c)  shippers  and  patrons  who 
really  pay  the  amount;  (d)  the  public  through  some  body 
such  as  the  Department  of  Commerce  and  Labor  or  the  In- 
terstate Commerce  Commission,  or  a  commission  yet  to  be 
established,  and  the  press. 

5.  Lay  before  the  meeting  first  of  all  the  total  amount 
of  the  demands  made  and  ask  the  representatives  of  em- 
ployees the  one  question,  "Can  the  road,  in  your  opinion, 
stand  the  increased  cost  of  operation  represented  by  this 
total  without  advancing  rates?'' 

No  question  of  the  distribution  of  the  total  amount  de- 
manded should  be  permitted  to  arise.  The  total  may  be 
so  absurdly  large  that  it  is  apparent  to  everyone  it  must  be 
scaled  down  fifty,  seventy-five,  ninety  per  cent,  before  it 
is  even  debatable,  and  each  class  may  show  a  disposition  to 
reproach  the  others  for  having  put  in  demands  that  are 

*The  suggestions  apply  whether  the  demand  is  for  higher  wages, 
shorter  hours,  or  any  other  change  in  conditions  of  employment  that 
means  increased  cost  of  operation. 


3o8  THE  NEW  COMPETITION 

ridiculous,  but  that  is  a  matter  for  the  men  to  settle  among 
themselves. 

The  company,  shippers  and  the  public  have  the  right  to 
insist  employees  as  a  body  shall  not  present  demands  the 
footings  of  which  make  an  amount  so  absurdly  high  that 
the  employees  themselves  concede  it  must  be  scaled  down. 

6.  If  the  employees  concede  that  the  aggregate  of  their 
demands  is  in  excess  of  anything  the  road  could  possibly 
afford,  it  will  be  for  them  to  retire  and  scale  their  de- 
mands to  a  total  they  think  the  road  can  pay. 

7.  On  the  presentation  of  the  revised  demand  it  will 
then  be  for  the  company  to  say  whether  it  can  and  is  will- 
ing to  add  the  sum  demanded  to  its  pay-roll,  thereby  in- 
creasing the  cost  of  operation. 

The  decision  must  have  the  approval  of  (c)  shippers, 
and  (d)  the  public,  inasmuch  as  both  are  affected. 

8.  If  the  road  with  the  approval  of  all  parties  interested 
says  it  will  appropriate  for  wages  the  additional  sum  de- 
manded, the  employees — all  classes — must  then  retire  and 
distribute  this  additional  amount  among  themselves  as  they 
see  fit,  settling  all  their  differences  among  themselves  with- 
out involving  the  management  of  the  road,  shippers,  or  the 
public,  in  any  controversy.  When  they  have  made  the  dis- 
tribution the  company  will  accept  the  schedule  and  pay  ac- 
cordingly. 

9.  If,  however,  the  road  reaches  the  conclusion  it  can- 
not pay  the  amount  demanded  without  increasing  rates, 
a  question  for  arbitration  will  result,  namely:  "What 
amount,  if  any,  can  the  road  pay  in  increased  wages  with- 
out increasing  rates?" 

In  this  arbitration  all  parties  interested  must  be  heard. 
Once  ascertained,  the  amount  will  be  distributed  by  the 
employees  according  to  paragraph  8. 

10.  If  the  employees  decline  to  arbitrate  the  question 
"What  amount,  if  any,  the  road  can  pay  without  increas- 


THE  LABOR  PROBLEM  309 

ing  rates/'  but  insist  upon  the  justness  of  their  claim, 
even  if  rates  must  be  advanced,  the  question  for  arbitra- 
tion then  is  two-fold  in  character,  "What  amount  are  the 
employees  entitled  to  irrespective  of  any  increase  in  rates  ?" 
and,  the  amount  ascertained,  "What  increase  of  rates  must 
be  allowed  to  cover  the  added  cost  ?" 

The  statement  of  the  question  involves  the  assumption 
that,  all  things  considered,  rates  may  be  lower  than  they 
should  be,  so  low,  in  fact,  they  do  not  cover  proper  cost 
of  operation  and  maintenance. 

It  is  obvious  that  this  question  raises  an  issue  between 
shippers  and  the  public  on  one  side  and  employees  on  the 
other. 


XI 


So  far  so  good,  but  it  is  plain  there  is  another  element 
involved  in  all  these  hypothetical  cases  and  especially  in 
the  question  last  suggested  for  arbitration,  namely,  the 
question  of  profits  to  stockholders. 

The  employees  may  insist  that  the  question  to  be  sub- 
mitted for  arbitration  is  threefold  in  character;  first,  what 
advance  are  they  entitled  to  irrespective  of  rates  and  divi- 
dends; second,  to  what  extent,  if  any,  must  rates  be  ad- 
vanced to  pay  the  amount;  third,  to  what  extent,  if  any, 
must  dividends  be  reduced  to  pay  the  amount. 

The  adjustment  of  that  question,  and  that  is  the  broad, 
the  fundamental  question,  presented  in  every  wage  and 
rate  controversy,  tdtimately  involves  a  valuation  of  the 
roads,  an  ascertainment  of  their  fair  capitalization,  and 
the  allowance  of  such  interest  and  dividend  charges  as  are 
necessary  to  secure  capital  for  improvement  and  extensions, 
a  fair  allowance  being  made  to  stockholders  for  risks  as- 
sumed, since  they,  in  the  first  instance,  assume  all  the  haz- 
ards ;  their  dividends  fluctuate  from  year  to  year,  and  often 


310  THE  NEW  COMPETITION 

disappear  entirely  long  before  the  prevailing  rate  of  wages 
is  reduced  or  rates  advanced. 

As  things  now  are  both  wage  controversies  with  em- 
ployees and  rate  controversies  with  shippers  are  settled  in 
the  dark. 

This  clas«  or  that  class  of  employees  demand  and  final- 
ly get  increases  in  wages  regardless  of  the  fair  claims  of 
other  employees  and  regardless  whether  the  stockholders 
of  some  of  the  roads  affected  have  ever  received  any 
dividends. 

Likewise  the  Interstate  Commerce  Commission  settles 
rate  controversies  for  all  the  roads  in  vast  sections  of  the 
country  with  no  accurate  data  regarding  the  actual  invest- 
ment in  any  one  of  the  roads  and,  consequently,  with  no 
information  whatsoever  whether  the  stockholders  of  any 
particular  road  are  justly  entitled  to  the  benefits  of  the 
rates  demanded. 

All  questions  regarding  both  rates  and  wages  are  now 
adjusted  from  year  to  year  in  haphazard  fashion,  with  no 
attempt  to  reach  a  scientific  basis  that  will  attain  lasting 
results. 


XII 


What  would  be  some  of  the  consequences  of  the  course 
suggested  ? 

Take  the  demand  of  the  engineers;  the  fifty  odd  roads 
affected  could  not  pursue  a  wiser  and  fairer  policy  than 
the  one  outlined  in  the  ten  numbered  suggestions. 

The  demand  made  by  the  engineers  involves  a  large 
amount,  estimated  at  $7,500,000,  added  to  the  cost  of 
operation. 

That  additional  amount  could  not  be  paid  without  ab- 
sorbing— certainly  with  many  of  the  roads — a  large  por- 
tion, possibly  the  entire  amount  available  for  making  in- 


THE  LABOR  PROBLEM  311 

creases  in  the  wages  of  other  classes  of  employees,  hence 
all  classes  have  a  right  to  be  heard  before  any  award  is 
made. 

There  is  the  further  possibility  that  the  amount  asked 
by  the  engineers  could  not  be  given  without  crippling  some 
or  all  of  the  roads,  unless  they  are  permitted  to  advance 
rates,  hence  shippers  and  patrons  are  interested. 

And  there  is,  of  course,  the  possibility  that  to  add  the 
amount  asked  to  cost  of  operation  would,  if  rates  are  not 
advanced,  affect  improvements  and  extensions,  hence  the 
public  is  keenly  interested. 

In  any  event  and  under  all  circumstances  every  dollar 
paid  out  by  a  railroad  comes  out  of  the  public  directly  or 
indirectly. 

A  demand  for  increased  wages  is  as  much  a  demand 
upon  the  public  as  a  demand  for  increased  rates — except 
where  increased  wages  or  shorter  hours  mean  such  in- 
creased efficiency  of  service  as  to  counterbalance  the  cost — 
that  would  be  one  of  the  questions  for  arbitrators  to  con- 
sider. 

But  when  the  engineers  of  one  road  who  are  each  mak- 
ing two  hundred  or  two  hundred  and  fifty  dollars  a  month 
demand  4>^  cents  a  mile  simply  because  the  engineers  of 
another  road  get  that  amount,  no  question  of  increased 
efficiency  is  involved. 


XIII 


The  roads  involved  have  proceeded  to  arbitrate  the 
engineers'  demand  with  the  certainty  that  no  sooner  is  that 
arbitration  over  than  another  union  will  present  its  claims, 
and  another,  and  another,  and  so  on  in  endless  chain. 

The  agitation  is  constant,  systematic,  and  shrewd;  the 
unions  "play  the  game"  incomparably  better  than  the  roads ; 
the  latter  are  timid,  the   former  daring;  the  roads  are 


312  THE  NEW  COMPETITION 

afraid  of  public  opinion,  of  the  press,  of  adverse  legisla- 
tion—of their  own  shadows — partly  because  their  shadows 
have  been  rather  black  in  the  past. 

If  in  the  present  emergency  ^  the  roads  should  adopt 
the  course  outlined,  the  Brotherhood  of  Engineers  would 
hardly  be  in  a  position  to  object  to  the  invitation  to  all  other 
classes  of  employees  to  present  their  claims,  since  the  move 
would  seem  to  be  a  big  step  in  the  direction  of  the  federa- 
tion of  labor,  the  dream  of  the  ardent  unionist  and  the 
nightmare  of  the  average  railroad  official. 

But  the  ultimate  result  would  be  the  partial  disintegra- 
tion of  labor  unions  along  present  artificial  lines  and  in- 
tegration in  the  normal  vertical  line. 

Public  opinion  would  certainly  support  the  roads  in  the 
fair  and  reasonable  requirement  that  all  employees  who  in- 
tend to  make  demands  shall  do  so  at  the  same  time  so  that 
the  sum  total  may  be  known  by  roads,  shippers  and  the  pub- 
lic generally,  and  so  that  whatever  amount  is  finally  al- 
lowed by  arbitration  or  by  some  tribunal  shall  be  equitably 
distributed  among  all  employees  entitled  to  increases,  and 
not  absorbed  by  some  one  or  two  classes  to  the  exclusion 
of  others. 

Public  opinion  would  also  support  the  proposition  that 
if  the  amounts  demanded  foot  up  to  an  absurd  total,  the  em- 
ployees themselves,  without  troubling  either  the  companies 
or  the  public,  should  scale  down  their  demands  until  the 
total  is  a  figure  they  themselves  seriously  contend  the 
roads  should  pay. 

Again,  public  opinion  would  certainly  support  the  prop- 
osition that  after  a  gross  amount  has  been  awarded,  the 
employees  should  distribute  this  amount  among  themselves 
without  troubling  the  roads  or  the  public;  but  if  the  pro- 
posed distribution  is  unfair  to  a  class  or  an  individual,  ar- 

*  Referring  to*the  controversy  with  .the  engineers  which  will  prob- 
ably be  settled  by  the  time  this  book  appears — settled  only  for  the  time 
being. 


THE  LABOR  PROBLEM  313 

bitration  would  be  necessary;  the  humblest  employee  must 
have  an  opportunity  to  have  his  claims  heard  and  con- 
sidered. 


XIV 


It  begins  to  be  plain  that  certain  results  would  quickly 
follow  the  adoption  of  the  plan  outlined. 

The  requirement  that  all  classes  of  employees — organ- 
ized and  unorganized — of  each  road  present  their  claims 
by  a  date  named  would  tend  to  bring  the  employees  of  each 
road  in  closer  contact  with  one  another — national  organiza- 
'tions  could  not  formulate  demands  that  would  fairly  adjust 
wages  to  conditions  and  earnings  of  particular  lines. 

The  presentation,  for  instance,  to  a  board  of  arbitra- 
tors of  the  demand  for  a  gross  sum  involves  first  the  allow- 
ance of  a  sum  in  gross  against  all  the  roads,  then  its  ap- 
portionment among  the  roads. 

A  moment's  consideration  shows  that  the  one  question 
involves  the  other,  for  while  it  would  seem  comparatively 
easy  to  award  a  sum  in  gross  based  upon  the  gross  earn- 
ings of  all  the  roads  involved,  it  is  not  easy  when  that  sum 
is  apportioned,  for  some  roads  might  not  be  able  to  in- 
crease their  operating  cost  by  the  amount  fixed,  while 
others  would  scarcely  feel  the  added  expense. 

No  arbitration,  award  and  apportionment  of  the  gross 
amount  demanded  would  be  fair  that  did  not  take  into  con- 
sideration the  condition  of  each  road. 

A  road  traverses  a  new  and  sparsely  settled  section  in 
the  far  west;  its  cost  of  construction,  maintenance  and 
operation  is  an  exceedingly  large  percentage  of  the  gross 
receipts  as  compared  with  an  older  road  in  thickly-settled 
sections ;  its  stockholders  may  get  nothing  for  years ;  mani- 
festly it  would  be  wrong  to  add  a  large  item  to  the  cost 
of  operating  such  a  road  in,  say,  Oregon,  simply  because 


314  THE  NEW  COMPETITION 

the  engineers  of  the  Pennsylvania  Company  demand  more 
pay;  just  as  illogical  as  it  would  be  to  arbitrarily  increase 
the  pay  of  clerks  in  a  dry-goods  store  in  Seattle  because 
the  clerks  in  a  similar  but  larger  store  in  New  York  are 
given  an  advance;  just  as  illogical  as  it  would  be  to  in- 
crease the  pay  of  deck-hands  on  Puget  Sound  simply  be- 
cause deck-hands  in  Boston  harbor  get  an  increase — and 
so  on. 

What  a  given  industry  can  pay  depends  upon  what  it 
earns,  not  upon  what  some  other  industry  pays.  There 
are  statistical  averages  and  levels  of  wages,  rents,  inter- 
est, taxes,  etc.,  etc.,  and  every  man  in  business  should 
study  these  averages  and  provide  accordingly;  he  cannot 
hope  to  get  his  labor  at  lower  than  the  prevailing  rates 
in  his  locality  any  more  than  he  can  hope  to  get  his  in- 
surance below  prevailing  rates;  but  whether  he  can  stand 
a  sudden  increase  of  either  wages  or  insurance  or  of  any 
other  item  of  cost,  depends  not  upon  what  some  other  man 
is  making  in  another  street  or  city,  but  upon  what  he  him- 
self is  making  in  his  own  business. 


XV 


Assuming,  however,  that  each  company  knows  exactly 
the  gross  sum  that  must  be  added  to  its  pay-rolls,  it  is  now 
for  the  employees  of  that  road  to  distribute  this  amount 
among  themselves. 

The  distribution  cannot  be  made  by  a  national  confer- 
ence, or  by  labor  leaders  sitting  a  thousand  miles  away;  it 
must  be  made  by  the  men  interested.  On  one  road  the 
firemen  may  be  entitled  to  a  ten  per  cent,  advance  out  of 
the  fund  as  against  two  per  cent,  for  the  engineers ;  on  an- 
other conditions  may  be  reversed,  or  the  brakemen  may  be 
entitled  to  ten  per  cent,  as  against  but  one  per  cent,  for 


THE  LABOR  PROBLEM  315 

engineers  and  firemen — and  so  on,  all  depending  upon 
conditions  of  service. 

The  result  would  be  a  strong  tendency  toward  integra- 
tion of  employees  of  each  road  and  a  loosening  of  the 
artificial  ties  that  now  bind  men  working  for  one  employer 
to  all  of  a  similar  class  working  for  competitors. 

Under  existing  conditions  labor  unions  recognize  the 
justice  of  virtually  all  that  has  been  said  by  making  differ- 
ent demands  for  different  sections  of  the  country.  They  do 
not  treat  with  all  roads  at  a  time,  but  concede  that  condi- 
tions east  and  west,  north  and  south,  are  different;  what 
one  section  of  the  country  can  afford  to  do  another  can- 
not. 

In  all  their  agitations  for  better  wages  the  unions  con- 
cede that  what  employers  in  one  city  can  pay  those  in  an- 
other cannot.  They  also  concede  that  what  one  industry 
can  pay  is  no  criterion  of  what  another  industry  can  pay. 

Carried  to  their  logical  conclusions  these  concessions 
mean  that  in  all  fairness  demands  made  upon  a  given  rail- 
road should  be  based  upon  that  particular  road's  ability 
to  meet  the  demands  and  not  upon  conditions  over  which 
the  road  has  no  control,  such  as  the  earnings  of  some  older 
and  more  profitable  company. 


XVI 


National  organizations  would  by  no  means  disappear, 
but  they  would  change  radically  in  character. 

The  integration  of  employees  with  their  industry  is 
one  thing;  the  cooperative  association  of  employees  and 
industries  is  quite  another  thing.  The  one  is  the  intimate 
union  of  ^11  interested  in  a  given  enterprise  to  make  it  a 
success;  the  other  is  the  friendly  association  of  all  related 
industries  and  all  related  occupations  in  national  organiza- 


3i6  THE  NEW  COMPETITION 

tions  the  prime  object  of  which  is  the  introduction  of 
higher  standards  and  sounder  principles  in  business  gen- 
erally. 

Each  railroad  should  be  completely  integrated  so  that 
it  is  an  efficient  and  harmonious  economic  unit.  At  the 
same  time  all  the  railroads  of  the  country  should  be  in 
one  great  national  association,  in  which  employees,  ship- 
pers, and  the  public  through  some  federal  administrative 
body  would  be  represented. 

Each  class  would  have  its  own  association,  in  a  spirit, 
not  of  antagonism,  but  of  cooperation. 

Associations  of  employees  and  shippers  should  have 
their  headquarters  and  meeting  places  in  the  same  build- 
ing with  the  general  association,  and  it  should  be  a  funda- 
mental rule  that  every  meeting  of  any  class  is  open  to  all 
other  classes.  The  result  would  be  that  while  each  road 
and  all  interested  would  be  influenced  in  the  consideration 
of  any  proposition,  primarily,  by  conditions  affecting  that 
road,  they  would  also  weigh  the  effect  of  their  actions  upon 
all  other  roads  and  all  parties  interested  in  the  same. 

Lines  of  cleavage  which  are  so  sharply  and  bitterly 
accentuated  now  would  fade  and  finally  disappear. 


XVII 

Unless  there  is  integration  the  outlook  is  gloomy,  in- 
deed. As  things  now  are  the  chasm  between  employer  and 
employee  is  widening  and  deepening;  class  feeling  is  be- 
coming more  and  more  bitter.  The  stronger  the  unions  the 
greater  the  necessity  for  employers  to  get  together  to  re- 
sist demands  that  frequently  have  no  other  basis  than  the 
determination  to  make  demands  persistently  and  syste- 
matically. 

The  time  is  ripe  for  a  rational  and  scientific  investiga- 


THE  LABOR  PROBLEM  317 

tion  of  the  entire  subject,  for  the  ascertainment  of  under- 
lying principles  and  the  formulation  of  fundamental 
propositions  and  rules  of  conduct  that  may  be  given,  if 
necessary,  the  sanction  of  law. 

The  strike  must  go. 

The  lock-out  must  go. 

Neither  has  any  place  in  the  civilization  of  the  twen- 
tieth century. 

True,  the  courts  have  said  repeatedly,  ^'Employees  have 
the  right  to  strike,"  '^Employers  have  the  right  to  dis- 
charge=lock-out." 

Legally,  yes ;  morally,  economically,  no. 

We  must  not  permit  our  notions  of  right  and  wrong 
to  become  confused  by  what  courts  say  men  have  the 
legal  right  to  do ;  what  is  legal  may  not  be  right,  and  what 
is  right  may  not  be  legal. 

Strictly  speaking  a  man  has  no  more  right  to  throw 
down  his  tools  and  quit  work  at  a  moment  that  will  cause 
some  one  else  loss  and  trouble,  than  has  an  employer  the 
right  to  ''fire"  a  man  at  a  time  and  under  conditions  that 
will  cause  him  loss  and  trouble. 

When  we  talk  of  rights  to  do  these  things  we  are  not 
in  the  domain  of  rights  at  all  but  in  that  of  lazv — of  le- 
gally punishable  acts,  and  every  man  knows  that  what  is 
legally  wrong  to-day  may  be  made  legally  right  to-mor- 
row by  act  of  a  legislature,  or  by  a  supreme  court  revers- 
ing its  own  decision,  and  every  one  also  knows  that  what  is 
legally  right  in  one  state  or  country  may  be  legally  wrong 
in  another  owing  to  differences  in  laws  or  decisions — and 
so  on  in  endless  confusion. 

But  what  is  really  right  does  not  depend  upon  legis- 
latures or  courts  but  upon  conscientious  and  intelligent 
conviction,  and  it  is  not  too  much  to  say  that  for  a  body 
of  men  to  strike  for  the  express  purpose  of  causing  ruin 
and  disaster,  cold  and  starvation  to  the  entire  community 


318  THE  NEW  COMPETITION 

is  contrary  to  conscientious  and  intelligent  conviction  and 
therefore  wrong;  they  have  no  more  right  to  do  it  than  they 
have  to  organize  a  mob  and  destroy  homes. 

Courts  may  be  powerless,  may  feel  compelled  to  hold 
men  have  the  legal  right  to  strike  and  paralyze  industry 
and  commerce,  but  in  their  reasoning  they  should  care- 
fully distinguish  between  a  legal  right,  which  is  a  very 
human  and  uncertain  proposition,  and  the  purer,  higher, 
more  abstract  theory  of  right  which,  law  or  no  law,  must 
finally  guide  men  in  all  their  actions  and  relations. 


XIX 

CLASS   LEGISLATION   AND    DISCRIMINATION 

I 

We  come  now  to  the  most  discreditable  and,  take  it  all 
in  all,  the  most  disheartening  chapter  in  American  history; 
discreditable  because  the  facts  it  relates  are  so  opposed  to 
all  our  ideals  of  freedom  and  equality;  disheartening  be- 
cause the  tendencies  disclosed  lead  straight  toward  the  ar- 
raying of  class  against  class  in  bitter  conflict,  and  the  dis- 
solution of  democratic  institutions. 

Not  that  this  country  will  proceed  to  such  extremes 
and  be  wrecked  on  the  rocks  that  have  wrecked  every  at- 
tempt heretofore  made  toward  popular  government — let  us 
hope  we  have  too  much  good  sense  to  run  blindly  into 
disaster,  but  that  is  the  way  we  are  heading  at  the  moment, 
and  no  impartial  observer  doubts  it. 

The  anarchist,  the  communist,  the  radical  socialist,  ob- 
serve the  trend  of  events  with  undisguised  satisfaction,  they 
say,  "We  are  nearing  the  crisis,"  and  stand  ready  with 
torch  and  bomb. 

The  average  American  looks  upon  Russia  as  the  hotbed 
of  anarchy  and  revolution,  yet  there  is  probably  far  more 
dynamite  systematically  used  in  the  United  States  than  in 
Russia  for  the  destruction  of  life  and  property  in  conflicts 
between  classes ;  and  certainly  far  more  than  is  used  in  any 
other  two  civilized  countries  taken  together. 

Three  presidents  slain  in  forty  years  is  a  record  no 

319 


320  THE  NEW  COMPETITION 

other  country  can  show.  True,  two  of  these  assassinations 
were  by  men  of  more  than  doubtful  sanity,  but  the  same 
can  be  said  of  European  crimes  of  similar  character. 

The  point  is  that  in  the  sane  or  insane  use  of  dynamite 
and  murderous  weapons  as  part  of  social  or  political  propa- 
ganda this  country  is  nowise  behind  the  most  despotic  of 
European  governments. 

We  think  Russia  is  on  the  verge  of  a  tremendous  social 
upheaval;  we  may  be  quite  as  near  one  ourselves. 

We  look  with  pitying  eye  upon  the  disorders  in  France 
and  gloomily  predict  the  Republic  will  not  last  long ;  where- 
as the  truth  is,  that  all  the  disorders  reported  would  add 
scarce  a  ripple  to  the  rioting  that  takes  place  periodically  in 
our  one  state  of  Pennsylvania,  to  say  nothing  of  the  highly 
inflammable  conditions  that  prevail  in  Colorado  and  those 
western  states  where  the  Industrial  Workers  of  the  World 
are  strong. 

In  all  probability  our  strength  lies  in  our  very  indiffer- 
ence to  what  is  going  on  about  us.  We  do  not  take  the  use 
of  dynamite  and  the  killing  of  presidents  very  seriously; 
our  attitude  is  one  of  regret  that  misguided  men  should  do 
such  things,  but  they  mean  to  us  nothing  in  particular,  there 
is  no  wider  significance,  no  warning;  we  think  the  country 
is  too  sound  and  sane  to  be  carried  off  its  feet. 

Let  us  hope  that  is  so;  at  the  same  time  things  are  go- 
ing on  that  are  more  significant  than  the  explosion  of  a 
bomb  or  the  killing  of  a  president. 

Class  legislation,  laws  drawn  for  the  avowed  purpose  of 
conferring  upon  certain  favored  classes  privileges  denied 
others; 

That  is  the  real  menace  to  our  institutions,  for  that  more 
than  anything  else  encourages  the  bomb  thrower,  the  rioter, 
the  assassin,  lending  a  certain  logical  coherence  to  their  dis- 
ordered ideas,  for  if  the  law  deals  with  certain  classes  as 
enemies  of  society  why  may  not  they? 


CLASS    LEGISLATION  321 


II 


Equality  of  all  men  before  the  law  has  been  the  boast  of 
American  civilization  from  the  foundation  of  the  govern- 
ment. 

It  has  ever  been  an  idle  boast  so  far  as  negroes  and  In- 
dians are  concerned,  sinks  to  a  whisper  as  regards  Chinese 
and  Japanese,  rings  a  little  hollow  when  women  are  consid- 
ered— but,  then,  they  are  not  "all  men." 

Still  it  is  the  fundamental  theory  of  our  civilization  that 
all  men  are,  certainly  should  he,  equal  before  the  law — that 
is  the  ideal  toward  which  we  are  supposed  to  be  working — 
are  we? 

The  answer  to  that  question  is  found  in  the  speeches  of 
our  public  men,  in  laws  proposed  and  laws  passed,  and  it  is 
that, 

At  no  period  in  the  history  of  the  world  has  there  been 
a  more  servile  catering  to  classes  who  have  votes. 


III 


This  IS  a  broad,  a  startling  assertion,  but  it  is  borne  out 
by  facts;  that  the  truth  is  not  more  clearly  realized  is  due 
partly  to  our  extraordinary  composure  and  partly  to  our 
peculiar  political  divisions.  In  most  countries  one  central 
legislative  body  speaks  for  the  nation ;  what  it  does  the  world 
notes  and  criticizes;  the  result  is  a  strong  counter-balance 
in  the  influence  of  public  opinion  within  and  without  the 
nation,  and  that  means  greater  deliberation.  In  this  coun- 
try there  are  forty-eight  almost  sovereign  states,  each  with 
complete  legislative  machinery,  passing  in  the  twilight  of 
semi-publicity  such  laws  as  it  sees  fit.     In  addition  there 


32  2  THE  NEW  COMPETITION 

is  the  federal  government  with  Congress  turning  out  its 
quota  of  statutes. 

These  forty-nine  legislative  bodies  give  the  demagogue 
his  golden  opportunity;  he  experiments  at  his  leisure  and 
almost  without  observation.  Even  if  the  American  people 
were  not  over-absorbed  in  making  money,  it  would  be  im- 
possible for  them  to  watch  all  their  legislatures,  as  it  is  they 
pay  so  little  attention  that  any  class  with  ordinary  persist- 
ence can  get  somewhere  almost  any  law  it  desires. 

So  true  is  this  that  the  courts  are  kept  busy  weeding  out 
the  laws  that  are  so  rank,  so  unfair,  so  one-sided  they  are 
clearly  unconstitutional. 

Only  the  courts  stand  between  the  people  and  the  de- 
mand of  special  classes  for  favoring  laws  and  now  the  courts 
are  assailed  for  their  independence  and  it  is  seriously  pro- 
posed to  subject  their  decisions  to  popular  vote. 


IV 


One  reason  why  the  American  people  have  paid  com- 
paratively little  attention  to  laws  proposed  and  passed  is 
because  they  rely  for  protection  upon  federal  and  state  con- 
stitutions ;  they  assume  that  no  law  which  is  unfair  to  any- 
body can  be  enforced;  they  cast  upon  the  courts  the  bur- 
den of  doing  the  work  they  should  do  themselves  through 
their  representatives. 

It  is  notorious  that  our  legislative  bodies  pass  many 
laws  they  know  are  not  constitutional;  the  expression  is 
often  heard,  **0h,  well,  let  it  go  through,  the  courts  will 
knock  it  out." 

But  distinguished  as  our  courts  are  for  their  courage 
and  independence,  they  are  composed  of  men  and  only 
human.    It  is  not  surprising  some  of  them  yield  and  try  to 


CLASS    LEGISLATION  323 

find  ways  to  sustain  laws  that  others  have  no  hesitation  in 
denouncing  as  unconstitutional. 

Steadily  and  systematically  the  independence  of  the  ju- 
diciary is  being  assailed ;  under  threat  of  "recall"  of  either 
men  or  decisions,  or  both,  judges  are  being  terrorized  into 
rendering  supposedly  popular  decisions. 

We  say  "supposedly"  for  nothing  is  more  certain  than 
that  the  thinking  masses  of  the  people  are  not  in  sympathy 
with  either  class  legislation  or  with  the  efforts  that  are  be- 
ing made  to. destroy  the  independence  of  the  judiciary. 


The  American  Federation  of  Labor  "is  composed  of  115 
national  and  international  unions,  representing  approxi- 
mately 27,000  local  unions,  4  departments,  39  state  branches, 
632  city  central  unions."  The  paid  membership  is  about 
2,000,000.  "The  affiliated  unions  publish  about  540  weekly 
or  monthly  papers  devoted  to  the  cause  of  labor."  There 
are  1,574  organizers  of  local  unions  acting  under  the  orders 
of  the  central  body. 

There  is  hardly  an  employment  that  does  not  have  its 
union. 

Besides  the  American  Federation  of  Labor  there  are  the 
Knights  of  Labor  and  the  Industrial  Workers  of  the  World. 

In  addition  and  not  affiliated  with  the  American  Federa- 
tion are  the  following  nation-wide  unions :  Bricklayers'  and 
Masons'  International;  Brotherhoods  of  Locomotive  Fire- 
men and  Engineers;  Brotherhood  of  Railroad  Trainmen; 
Railroad  Conductors'  Order. 

While  the  voting  strength  of  2,000,000  is  not  great  as 
compared  with  a  total  of  over  15,000,000  voters  in  the 
country,  it  is  a  body  the  average  politician  fears  and  there- 
fore favors. 


324  THE  NEW  COMPETITION 


VI 

In  considering  the  laws  about  to  be  referred  to  it  must 
be  borne  in  mind  that, 

The  prime  object  of  a  labor  union  is  to  advance  prices 
of  labor. 

The  prime  object  of  a  farmers'  cooperative  society  is  to 
advance  prices  of  produce. 

The  prime  object  of  a  manufacturers*  combination  is  to 
advance  prices  of  goods. 

The  fundamental  proposition  underlying  any  discussion 
of  these  attempts  of  the  several  classes  to  benefit  themselves 
is  that  whatever  opportunities  are  open  to  one  class  should, 
in  all  fairness,  be  open  to  the  others,  without  favor,  without 
discrimination. 

But  they  are  not. 

Nearly  every  state  has  drastic  laws  against  combina- 
tions of  manufacturers  and  dealers. 

Here  are  some  of  the  exceptions  made  in  favor  of  labor 
and  farmers: 

VII 

The  Illinois  anti-trust  law  excepts  all  parties  engaged 
in  mining,  manufacture  or  any  industry  the  cost  of  the 
product  of  which  is  mainly  made  up  of  wages,  and  also 
contains  a  provision  that  it  shall  not  be  unlawful  for  per- 
sons or  corporations  to  enter  into  joint  arrangements  of  any 
sort,  the  principal  object  or  effect  of  which  is  to  maintain 
or  increase  wages. 

The  law  also  provides  that  "the  provisions  of  this  act 
shall  not  apply  to  agricultural  products  or  live-stock  while 
in  the  hands  of  the  producer  or  raiser."^ 

*  Referring  to  this  exception,  a  federal  court  said :  "Can  it  be 
claimed  that,  under  this  clause,  every  person  within  the  jurisdiction  of 


CLASS    LEGISLATION  325 


VIII 


Montana  in  its  law  against  combinations  provides  that  it 
shall  not  apply 

"To  any  arrangement,  agreement  or  combination  be- 
tween laborers  made  with  the  object  of  lessening  the  hours 
of  labor  or  increasing  wages,  nor  to  persons  engaged  in  hor- 
ticulture or  agriculture  with  a  view  to  fixing  the  price  of 
their  products." 

Montana  and  Nebraska  both  provide  that : 

"Nothing  herein  contained  shall  be  construed  to  prevent 
any  assemblies  or  associations  of  laboring  men  from  pass- 
ing and  adopting  such  regulations  as  they  may  think  proper, 
in  reference  to  wages  and  the  compensation  of  labor,  and 
such  assemblies  and  associations  shall  retain,  and  there  is 
hereby  reserved  to  them,  all  the  rights  and  privileges  now 
accorded  to  them  by  law,  anything  herein  contained  to  the 
contrary  notwithstanding." 

South  Dakota  has  a  similar  exemption. 

Montana  goes  farther  than  merely  protecting  labor 
unions,  it  expressly  provides  by  law,  that  state  printing  shall 
have  thereon  the  label  of  the  branch  of  the  International 
Typographical  Union  of  the  city  in  which  the  printing  is 
done. 

Other  states  have  laws  protecting  the  use  of  union  labels 
and  trade  marks. 

the  state  of  Illinois  has  equal  protection  of  the  laws?  Is  not  this 
class  legislation?  Is  it  in  accordance  with  section  I  of  the  fourteenth 
amendment  to  the  federal  constitution,  that  those  who  raise  agricultural 
products  or  livestock  shall  be  excepted  from  the  provisions  of  a  statute 
which,  by  its  terms,  is  binding  on  every  other  citizen  or  person  within 
the  state?  I  think  clearly  not.  I  am  of  the  opinion  that  this  statute 
contains  both  class  and  special  legislation,  and  is  in  contravention  of 
both  the  federal  and  state  constitutions,  and  therefore  void." 


326  THE  NEW  COMPETITION 


IX 


Pennsylvania  expressly  permits  the  organization  of  labor 
unions  and  authorizes  them 

"to  refuse  to  work  or  labor  for  any  person  or  persons, 
whenever  in  his,  her  or  their  opinion  the  wages  paid  are 
insufficient,  or  the  treatment  of  such  laborer  or  laborers, 
workingman  or  workingmen,  journeyman  or  journeymen, 
by  his,  her  or  their  employer,  is  brutal,  or  offensive,  or  the 
continued  labor  by  such  laborer  or  laborers,  workingman 
or  workingmen,  journeyman  or  journeymen,  would  be  con- 
trary to  the  rules,  regulations  or  by-laws  of  any  club,  so- 
ciety or  organization  to  which  he,  she  or  they  might  belong, 
without  subjecting  any  person  or  persons  so  refusing  to 
work  or  labor  to  prosecution  or  indictment  for  conspiracy 
under  the  criminal  laws  of  this  commonwealth." 


X 


Louisiana  has  this  constitutional  provision: 

"It  shall  be  unlawful  for  persons  or  corporations,  or 
their  legal  representatives,  to  combine  or  conspire  together, 
or  to  unite  or  pool  their  interests,  for  the  purpose  of  forc- 
ing up  or  down  the  price  of  any  agricultural  product  or 
article  of  necessity  for  speculative  purposes,  and  the  legisla- 
ture shall  pass  laws  to  suppress  it." 

But  the  laws  of  Louisiana  expressly  provide : 

"That  the  provisions  of  the  act  shall  not  apply  to  agri- 
cultural products  or  live-stock  while  in  the  hands  of  the 
producer  or  raiser ;  nor  be  construed  as  to  affect  any  com- 
bination or  confederation  of  laborers  for  the  purpose  of 
increase  of  their  wages  or  redress  of  grievances." 


CLASS    LEGISLATION  3^7 


XI 


The  anti-trust  act  of  Michigan  contains  this  provision: 

"The  provisions  of  this  act  shall  not  apply  to  agri- 
cultural products  or  live-stock  while  in  the  hands  of  the 
producer  or  raiser,  nor  to  the  services  of  laborers  or 
artisans  who  are  formed  into  societies  or  organizations  for 
the  benefit  and  protection  of  their  members/' 

The  Mississippi  anti-trust  law  contains  this  exception : 

"But  this  shall  not  apply  to  the  associations  of  those 
engaged  in  husbandry  in  their  dealings  with  commodities  in 
the  hands  of  the  producer,  nor  to  the  societies  of  artisans, 
employees  and  laborers  formed  for  the  benefit  and  proteC' 
tion  of  their  members." 

North  Carolina's  anti-trust  law  says : 

"The  act  does  not  apply  to  agricultural  products  while 
in  the  hands  of  the  producer,  nor  to  the  lumber  interest  of 
the  state,  neither  shall  it  prevent  cotton  or  woolen  mills 
from  regulating  the  amount  of  their  output  or  sellixig  the 
same  through  an  agent." 

XII 

The  following  states  have  laws  which  expressly  prohibit 
any  employer  from  discharging  or  threatening  to  discharge 
any  employee  because  of  his  connection  with  a  labor  union : 
Illinois,  Indiana,  Kansas,  Minnesota,  Montana,  Tennessee, 
Missouri,  Ohio,  Wisconsin. 

The  laws  of  Massachusetts  provide  for  the  organization 
and  incorporation  of  labor  associations,  as  do  also  the  laws 
of  Maryland. 

Michigan  makes  provision  for  the  incorporation  and 
management  of  workingmen's  associations  and  also  for  the 
organization  of  builders'  and  traders'  exchanges.    Also  for 


328  THE  NEW  COMPETITION 

the  incorporation  of  local  assemblies  of  Knights  of  Labor 
and  Sons  of  Industry. 

Stronger  and  stronger  pressure  is  being  brought  to  bear 
upon  Congress  to  induce  it  to  exempt  labor  unions  from 
the  operation  of  the  Sherman  Act. 


XIII 


It  would  be  out  of  place  in  a  book  of  this  character  to 
enter  into  an  extended  discussion  of  the  constitutional  ques- 
tions raised  by  these  attempts  to  expressly  permit  certain 
classes  to  do  things  forbidden  other  classes. 

The  question  is  not  one  of  law  simply,  but  rather  of  fair 
play,  of  what  is  right  and  just. 

It  does  not  need  a  lawyer  to  convince  the  average  citizen 
that  these  laws  are  not  right,  not  fair,  not  just;  and  no 
community  can  persist  long  in  the  course  indicated  by  such 
legislation  and  last — it  is  building,  not  upon  a  foundation  of 
justice,  but  upon  the  shifting  sands  of  popular  prejudice.^ 

*  Speaking  of  the  Texas  anti-trust  law,  which  is  sweeping  in  its 
terms  and  penalties  as  against  certain  classes,  the  federal  court  had 
occasion  to  say  (in  re  Grice,  79  Fed.  R.  627)  : 

"The  exemption  of  agricultural  products  in  the  hands  of  the  origi- 
nal producer  and  raiser  exempts,  upon  a  rough  estimate,  four-fifths  of 
the  people  of  Texas  from  the  operation  of  this  act,  because  four-fifths 
of  the  people  of  Texas  are  engaged  in  the  business  of  producing  and 
raising  agricultural  products  and  livestock.  The  penalties  are  visited 
upon  the  remaining  one-fifth  of  the  people,  without  regard  to  any  par- 
ticular class.  This  one-fifth  comprises  all  classes  not  heretofore  ex- 
empted. And  this  is  in  face  of  the  constitutional  guaranties,  state  and 
federal,  of  perfect  equality  of  the  citizen  before  the  law.  Even  in  the 
matter  of  labor,  the  iniquitous  character  of  the  enactment  under  dis- 
cussion is  apparent.  This  statute  makes  no  exemption  of  labor,  or  of 
the  products  of  labor.  Under  its  terms  and  provisions  the  laborer  is 
subjected  to  punishment  for  doing  the  very  act  that  the  land-owner 
or  farmer  is  authorized  to  do.  The  original  producer,  if  a  farmer,  has 
authority  to  combine  to  fix  prices,  restrict  trade,  build  up  monopolies, 
while  the  original  producers  in  other  lines  of  labor  are  denounced  for 
combining.  The  agricultural  products  of  the  farmer  are  the  fruits  of 
his  labor,  but  no  more  so  than  the  manufactured  articles  of  the  work- 


CLASS    LEGISLATION  329 


XIV 

We  have  mentioned  some  of  the  direct  attempts  to  ex- 
empt certain  favored  classes  from  the  operation  of  laws 
aimed  at  other  classes,  but  there  is  the  indirect  and  more 
vicious  method  of  accompHshing  the  same  result,  which  is  to 
pass  laws  covering  all  classes,  but  not  enforce  them  against 
the  favored  classes. 

ingman  are  the  fruits  of  his  labor.  The  blacksmith,  the  carpenter,  and 
all  other  artisans  purchase  their  raw  material,  and  the  manufactured 
products  constitute  the  fruits  of  their  labor,  upon  which  they  must 
rely  for  the  sustenance  of  themselves  and  families,  just  as  the  agricul- 
tural products  of  the  farmer  constitute  the  fruits  of  his  labor,  upon 
which  he  relies  for  similar  purposes ;  yet  the  statute  prescribes  total 
inequality  between  these  classes,  and  encourages  the  one  to  build  up 
monopolies,  while  denouncing  the  others,  if  they  make  an  attempt  in 
the  same  direction;  or,  to  apply  the  provisions  of  the  statute  to  the 
matter  of  livestock,  from  which  application  this  inequality  becomes  still 
more  apparent,  the  cattle  king  may  raise  his  thousands  of  head  of  live- 
stock each  year,  and,  so  long  as  his  stock  remains  in  his  hands,  he 
can  combine,  not  only  with  his  neighbors,  but  with  all  other  similar 
original  producers  throughout  the  state  of  Texas,  or  even  throughout 
the  United  States,  for  the  purpose  of  fixing  the  prices  and  monopoliz- 
ing markets.  Not  so,  however,  with  the  hands  which  he  employs,  and 
which  constitute  the  ordinary  labor  of  the  ranch.  The  fruits  of  the 
labor  of  the  latter  class  are  his  day's  work.  This  may  be  paid  him 
either  in  money,  which  he  invests  in  stock,  or  it  may  be  paid  him  in 
stock,  on  shares,  or  otherwise;  and  yet,  not  being  the  original  pro- 
ducer, he  is  forbidden  to  make  any  combination  of  any  character 
whereby  the  price  of  the  fruits  of  his  labor  can  be  promoted  or  regu- 
lated in  any  manner  whatsoever.  These  common  laborers  on  the  ranch 
can  form  no  agreement  among  themselves  whereby  they  can  maintain 
the  prices  of  their  labor,  and  yet  the  ranch  owners  can  combine  with 
other  ranch  owners  with  reference  to  the  prices  of  their  products  which 
constitute  the  fruits  of  their  labor.  The  demonstration  can  be  carried 
to  a  further  absurdity  by  simply  calling  attention  to  the  fact  that,  under 
the  terms  of  the  statute,  the  farmer  or  stock-raiser  may  combine  with 
any  person,  firm  or  corporation  whatsoever,  or  any  number  of  them, 
in  respect  to  agricultural  products  he  has  produced,  or  livestock  he  has 
raised,  without  fear  of  punishment  under  the  law,  and  yet  the  party  or 
parties  with  whom  he  makes  such  a  combination  may  be  held  liable 
to  all  the  penalties  denounced  against  such  combinations.  Two  citizens 
may  combine,  therefore,  for  the  purpose  of  fixing  prices ;  one,  by  doing 
so,  committing  a  crime,  and  the  other,  by  doing  so,  performing  a  laud- 
able act.  If  this  is  equality  before  the  law,  within  the  meaning  of  the 
constitution,  we  had  better  revise  the  constitution." 


330  THE  NEW  COMPETITION 

The  direct  method  has  at  least  this  merit,  it  is  straight- 
forward and  open;  the  indirect  is  a  cowardly  evasion  of 
the  issue. 

The  administration  of  the  Sherman  law  is  an  illustra- 
tion in  point. 

There  is  no  question  that  in  its  terms  that  act  covers 
combinations  of  labor  and  combinations  of  farmers  when 
they  affect  interstate  commerce.  In  the  few  cases  that  have 
arisen  the  courts  have  been  obliged  to  so  hold,  yet  prac- 
tically every  prosecution  under  the  act  and  every  hill  Hied 
to  dissolve  a  combination  have  been  against  combinations 
of  manufacturers,  dealers  and  railroads,  notwithstanding 
violations  by  other  classes  have  been  open,  notorious  and 
flagrant. 

The  threat  of  the  Brotherhood  of  Locomotive  Engineers 
to  absolutely  stop  inter-state  traffic  on  over  fifty  railroads 
unless  their  demands  for  increased  wages  are  granted,  is  a 
case  in  point. 


XV 


The  extent  to  which  the  cooperative  movement  is  spread- 
ing among  farmers  is  shown  by  the  following,  taken  from 
a  comprehensive  summary  by  an  authority  on  the  subject '} 

"Anyone  who  does  not  follow  the  subject  will  be  sur- 
prised at  the  extent  of  successful  cooperation  among  farm- 
ers of  the  United  States  and  the  rapidity  with  which  it 
spreads." 

"The  producers  are  finding  out  in  every  section  of  the 
country  that  it  is  necessary ;  and  in  every  part  of  the  coun- 
try they  are  profiting  by  it." 

"In  Michigan  the  grape-growers  have  very  efficient 
associations." 

*"The  Cooperative  Farmer,"  by  John  Lee  Coulter,  a  Minnesota 
farmer,  of  Mallory,  Minn.;  member  of  the  Faculty  of  the  University 
of  Minnesota,  and  Supervisor  of  Agricultural  Statistics  of  the  Census 
Bureau.    See  World's  Work,  November,  191 1,  pp.  59-63- 


CLASS    LEGISLATION  33 1 

"In  the  grain-growing  states  the  farmers  own  approxi- 
mately 1, 600  grain  elevators.  These  range  in  value  from 
$4,000  to  $10,000,  and  everyone  looks  after  the  market- 
ing of  approximately  150,000  bushels  of  grain."  "There 
are  in  this  region  about  200,000  cooperating  farmers,"  .  .  . 
"and  they  control  the  sale  of  nearly  250,000,000  bushels  of 
grain.*' 

Many  of  these  societies  look  after  the  selling  of  other 
farm  products,  act  as  live-stock  shipping  associations,  and 
purchase  such  twine,  fuel,  fertilizers,  and  feed  as  the  farm- 
ers need. 

In  the  same  northern  states  where  dairying  is  import- 
ant, there  are  now  probably  2,000  cooperative  creameries. 

In  the  same  states  the  farmers  own  more  than  150  co- 
operative stores,  hundreds  of  cooperative  telephone  com- 
panies, and  mutual  fire  insurance  companies. 

In  Colorado  the  Grand  Junction  Fruit  Growers  are  well 
organized. 

In  Idaho,  Washington,  and  Oregon,  there  are  a  number 
of  local  marketing  associations. 

In  California  "the  fruit  growers*  exchange  controls  the 
marketing  of  probably  three-fourths  of  the  citrus  fruits  pro- 
duced. Other  smaller  organizations  control  most  of  the  re- 
mainder." 

The  California  Fruit  Growers'  Exchange  is  looked  upon 
as  the  most  successful  farmers'  organization  in  the  United 
States.  "The  10,000  members  have  about  300  packing 
houses  and  produce  50,000  carloads  of  fruit  every  year." 

The  California  Fruit  Exchange,  which  is  very  much  like! 
the  Fruit  Growers'  Exchange,  looks  after  the  marketing  of 
the  deciduous  fruits. 

"The  recently  organized  Almond  Growers'  Exchange, 
with  a  dozen  local  societies,  controls  the  marketing  of  con- 
siderably more  than  half  the  almonds  produced  in  the 
United  States." 

"The  Walnut  Growers'  Association,  with  eighteen  local 


332  THE  NEW  COMPETITION 

societies,  controls  the  marketing  of  15,000,000  pounds  of 
walnuts,  which  is  probably  eighty  per  cent,  of  the  walnuts 
grown  m  the  United  States." 

In  Virginia  the  farmers  of  two  counties  have  an  ex- 
change that  handled  in  19 10  more  than  1,000,000  barrels  of 
Irish  potatoes  and  800,000  barrels  of  sweet  potatoes  in  ad- 
dition to  thousands  of  crates  of  berries  and  other  products. 

The  apple  growers  of  Virginia  are  organized  and  the 
peach  growers  of  Georgia  are  struggling  with  their  prob- 
lem. 

"A  successful  fruit  exchange  would  know  almost  ex- 
actly how  much  fruit  could  be  shipped  from  day  to  day, 
how  many  cars  would  be  needed,  what  the  principal  rates 
would  be  to  the  different  markets,  how  many  cars  of 
peaches  the  people  in  the  different  cities  would  need  from 
day  to  day,  what  outside  competition  would  have  to  be 
met,  and  practically  what  prices  should  be  received" 

That  same  organization  could  purchase  crates  and  ma- 
terials for  members  and  make  a  saving. 

The  citrus  fruit  producers  of  Florida  are  trying  to  fol- 
low California  methods. 

"It  is  to  the  interest  of  all  the  people  of  Florida,  and 
indeed  of  all  consumers  of  good  fruit,  to  help  in  every  pos- 
sible way  to  reduce  the  cost  of  fruit  by  better  marketing 
methods,  to  carry  better  fruit  to  the  consumers,  and  at 
the  same  time  to  make  the  growers  more  prosperous  by 
giving  them  a  larger  share  of  what  the  consumer  pays.'* 

There  are  several  hundred  organizations  among  the  cot- 
ton growers. 

"There  should  be  several  thousand  local  cooperative 
unions  tt>  control  local  gins,  warehouses,  presses,  and  oil 
mills/' 

"The  time  has  passed  for  petty  jealousies  and  indi- 
vidual bartering.  Business  must  be  done  in  a  business-like 
way." 


CLASS    LEGISLATION  333 

There  are  in  the  lower  South  and  in  Tennessee  and  Ken- 
tucky a  number  of  srnall  local  societies  interested  in  the 
marketing  of  vegetables  and  such  products. 

"In  Tennessee  and  Kentucky  the  tobacco  growers  have 
been  struggling  for  some  years  to  improve  their  conditions. 
They  have  made  some  mistakes.  'Night  riding'  and  lim- 
itation of  output — both  of  these  were  written  about  but 
practiced  very  little — were  serious  errors.  These  farmers 
should  follow  the  lead  of  the  southern  cotton  growers. 
First  of  all,  they  must  own  their  warehouses;  and  they 
should  control  the  tobacco  which  they  produce  until  they 
are  able  to  get  fair  prices  for  it/' 

The  rice  growers  in  Louisiana  and  Texas  have  taken  up 
the  new  movement.  The  Louisiana  organizations,  with 
headquarters  at  Crowley,  have  adopted  the  methods  of  the 
California  fruit  growers. 

Texas  truck  growers  along  the  southern  border  are  in- 
corporated, membership  in  1906  covered  70  per  cent,  of  the 
crop. 

Speaking  of  the  advantages  of  the  movement : 

"Educational  and  social  advantages  are  everywhere 
noticeable,  but  the  money  gain  'sticks'  out  clearly  or  the 
companies  would  not  last  long/' 

"The  Farmers'  Cooperative  Elevator  Co.  of  Wheaton, 
Minn.,  handled  about  100,000  bushels  of  grain  last  year 
and  declared  a  dividend  of  40  per  cent.  Two  years  ago  the 
company  at  Clinton,  Minn.,  declared  a  dividend  of  40  per 
cent.    There  are  many  better  records  than  this." 

We  have  italicised  certain  portions  of  the  foregoing 
paragraphs  to  emphasize  the  argument  to  follow. 


XVI 

Cooperation  of  labor  is  here  to  stay. 
Cooperation  of  farmers  is  here  to  stay. 


334  THE  NEW  COMPETITION 

Cooperation  of  manufacturers  and  dealers  is  here  to  stay. 

Those  are  three  vital  facts  that  cannot  be  disputed,  and 
the  man,  or  body  of  men,  who  fights  against  any  one  of 
those  propositions  is  struggling  against  an  irresistible  cur- 
rent. 

If  any  one  of  the  three  classes  denies  the  right,  the  moral, 
the  economic,  the  legal  right  of  either  of  the  others  to  co- 
operate, that  class  cuts  the  ground  from  beneath  its  own 
feet. 

What  are  the  plain  truths  about  the  cooperative  associa- 
tions described? 

With  few  exceptions  all  are  organized  for  the  express 
purpose  of  controlling  and  restraining  interstate  commerce. 

With  few  exceptions  each  is  a  combination  in  violation 
of  the  Sherman  law — if  the  many  decisions  of  the  courts 
against  combinations  of  manufacturers  and  dealers  are  ap- 
plied without  fear  or  favor. 

Between  a  combination  of  fruit  growers  that  controls 
the  price  of  fruit  and  a  combination  of  fruit  preservers  that 
controls  the  price  of  the  same  fruit  canned,  the  court  does 
not  exist  that  can  draw  any  fair  and  logical  distinction  so 
far  as  the  ultimate  consumer  and  the  Sherman  law  are  con- 
cerned, yet  no  lawyer  would  dare  advise  the  preservers 
they  could  organize  to  control  the  prices  of  preserves. 


XVII 

In  the  paragraphs  quoted  substitute  the  term  "manufac- 
turers" for  farmers  and  try  the  result  on  some  court  that 
is  hearing  a  case  against  manufacturers. 

Take  this :  "There  are  in  this  region  about  200  cooper- 
ating mills  (instead  of  200,000  farmers)  and  they  control 
the  sale  of  2,500,000  barrels  of  flour"  (instead  of  250,000,- 
000  bushels  of  grain). 


CLASS    LEGISLATION  335 

Does  any  man  doubt  the  combination  of  mills  would  be 
held  illegal  and  every  member  be  liable  to  indictment  and 
conviction?    Yet  where  is  the  distinction? 

Again:  "The  recently  organized  Association  of  Almond 
Dealers  (instead  of  almond  growers)  controls  the  market- 
ing of  considerably  more  than  half  the  almonds  produced 
in  the  United  States." 

The  combination  of  dealers  would  be  illegal,  yet  where 
is  the  distinction  f 

Again:  The  association  of  Wholesale  Grocers  (instead 
of  Walnut  Growers)  controls  the  marketing  of  80  per  cent, 
of  the  nuts  grown  in  the  United  States. 

A  grocers'  association  has  been  in  trouble  for  doing  less, 
yet  where  is  the  distinction? 

To  paraphrase  further — a  successful  combination  of  salt 
companies  (instead  of  fruit  exchanges)  would  know  almost 
exactly  how  much  salt  could  be  shipped  from  day  to  day, 
how  many  cars  would  be  needed,  what  the  freight  rates 
would  be  to  the  different  markets,  how  many  cars  of  salt 
(instead  of  peaches)  the  people  in  the  different  cities  would 
need  from  day  to  day,  what  outside  competition  would  have 
to  he  met,  and  practically  what  prices  should  he  received. 

The  salt  makers  have  tried  this  and  their  combination 
was  held  illegal,  where  is  the  distinction? 

Lastly,  while  in  the  cooperative  movement  "educational 
and  social  advantages  are  everywhere  noticeable,  the  money 
gain  'sticks  out'  clearly,  or  the  companies  would  not  last 
long." 

That  is  precisely  the  objection  urged  by  the  courts 
against  combinations  of  manufacturers  and  dealers — the 
"money  gain  'sticks  out,' "  yet  where  is  the  distinction? 


33^  THE  NEW  COMPETITION 


XVIII 

The  foregoing  comparisons  are  made  in  no  spirit  of  an- 
tagonism to  the  cooperative  movement  among  farmers — it 
is  here  to  stay,  and  every  disinterested  man  should  wish  it 
God-speed. 

They  are  made  for  the  purpose  of  enlisting  the  friendly 
interest  of  the  farmers  themselves  in  a  broader  and  less 
selfish  cooperative  movement;  to  induce  them  to  take  a 
wider  and  fairer  outlook  and  see  that  what  is  good  for  them 
must  be  equally  good  for  labor  on  the  one  hand  and  manu- 
facturers, dealers,  and  railroads  on  the  other;  that  if  it  is 
good  for  growers  of  wheat  and  cotton  to  cooperate  it  must 
he  equally  good  for  makers  of  flour  and  cotton-goods  to  co- 
operate, and  all  for  substantially  the  same  purposes. 

XIX 

It  is  curious  how  the  abuse  of  words  tends  to  bias  our 
reasoning. 

The  misuse  of  the  term  "capital"  is  responsible  for  no 
end  of  mischief. 

In  economic  literature  and  every  day  speech  it  is  com- 
mon to  use  the  phrase,  ''labor"  and  "capital"  as  if  the  two 
were  antagonistic,  opposed  one  to  another. 

As  a  natural  result  all  sympathy  veers  to  the  side  of 
labor  and  a  false  issue  is  created. 

Why? 

Because  labor  is  human  and  capital  is  material,  and  when 
the  impression  is  conveyed  that  labor  is  arrayed  against 
capital,  sympathy  inevitably  flows  to  the  human  side. 

Capital  is  simply  wealth  used  to  produce  more  wealth. 
It  is  at  the  service  of  anybody  and  everybody ;  capital  would 
exist  just  the  same  in  a  socialistic  community. 


CLASS    LEGISLATION  337 

Labor  may  have  a  quarrel  with  employers,  whoever  they 
may  be,  but  not  with  capital. 

Labor  and  capital  are  required  to  produce  wealth,  just 
as  a  man  and  a  spade  are  required  to  dig,  and  there  is  no 
more  antagonism  between  labor  and  capital  than  between  a 
man  and  the  spade  which  is  his  capital. 

Comparatively  few  laborers  do  not  own  some  capital. 
In  a  sense  the  clothes  on  their  backs  and  the  dinner  pail  in 
their  hands,  to  say  nothing  of  the  tools  they  own,  are  cap- 
ital. 

The  farmer  is  a  capitalist  to  the  extent  of  over  28  bil- 
lions of  dollars  in  land,  over  6  billions  of  dollars  in  build- 
ings and  over  one  and  one-quarter  billions  in  implements. 

The  farmers  of  a  single  state,  Iowa,  have  over  $95,000,- 
000  in  implements  alone. 

The  farmers  have  about  twice  as  much  in  lands,  build- 
ings and  implements — excluding  all  other  items — as  the 
manufacturers  of  the  country  have  in  their  factories. 

All  the  trusts  put  together  make  a  small  total  as  com- 
pared with  farm  values. 

The  use  of  the  term  "capital"  to  mark  divisions  between 
classes  is  productive  of  irreparable  mischief. 


XX 


There  are  two  great  classes  in  every  country — those  who 
work  for  wages,  and  those  who  pay  wages — employees  and 
employers.  In  this  connection  the  term  labor  may  be  used 
— though  by  no  means  accurately — for  employees,  but  by  no 
stretch  of  language  is  it  permissible  to  use  "capital"  as  the 
equivalent  of  employers. 

Much  of  the  literature  and  three-fourths  of  the  speeches 
on  the  wrongs  of  labor  would  lose  their  seeming  force  if 
for  the  term  "capital"  wherever  used  were  substituted  the 


338  THE  NEW  COMPETITION 

human  term  actually  meant — manufacturers,  contractors, 
employers  generally. 

There  would  remain  the  natural  rivalry  between  those 
who  receive  and  those  who  pay  wages,  but  belief  in  an  ir- 
repressible conflict  would  disappear,  since  we  all  know  that 
in  this  country  most  men  at  some  time  in  their  lives  work 
for  wages,  and  most  men  at  different  times  pay  wages. 

The  farmer  is  not  only  the  greatest  capitalist  in  the  coun- 
try, but  he  is  a  great  employer  of  labor.  In  1909  he  paid 
out  $645,000,000  in  wages. 

An  article  on  farm  life  says  } 

"In  reply  to  the  question,  *What,  in  your  opinion,  is  the 
greatest  need  of  the  farmer  of  to-day,  or  the  greatest  prob- 
lem with  which  he  must  contend?'  one  hundred  and  eleven 
out  of  440  Missouri  farmers  answered,  'Hired  help'."  ^ 

*"The  Farmers  on  Farm  Life,"  World's  Work,  November,  191 1. 

"More  than  ten  years  ago,  in  a  work  on  "The  Law  of  Combina- 
tion," the  writer  said: 

"In  the  production  of  wheat,  for  instance,  the  farmer  has  his  capi- 
tal invested  in  land  and  improvements  thereon,  tools  and  implements, 
horses,  wagons,  seed,  etc.;  it  is  still  necessary  for  him  to  hire  more 
or  less  labor  in  the  course  of  the  year,  and  especially  about  harvest 
time,  in  order  to  make  his  wheat  ready  for  the  market  and  dispose  of 
same ;  so  far  as  the  cost  of  production  of  the  wheat  is  concerned,  both 
the  items  of  labor  and  consumption  of  capital  are  outlays  which  must 
be  recouped  in  the  price,  otherwise  the  production  of  the  wheat  is  a 
loss.  So  far  as  the  farmer  is  concerned,  it  is  immaterial  whether  a 
combination  of  labor  advances  the  wages  of  his  harvest  hands,  or  a 
combination  of  manufacturers  advances  the  cost  of  his  reaping  and 
threshing  machinery:  both  advances  must  be  recouped  in  the  price  of 
the  wheat.  Confining  our  view  for  the  moment  to  the  hypothetical 
farmer,  it  would  be  manifestly  unjust  to  forbid  him  by  law  from  com- 
bining with  other  farmers  to  get  a  better  price  for  his  wheat,  if  the  law 
permits  labor  to  combine  to  make  him  pay  higher  wages,  and  manu- 
facturers to  combine  to  make  him  pay  higher  prices  for  his  reaping 
and  threshing  machinery.  What  is  true  in  this  connection  concerning 
the  producer  of  wheat  is  true  of  the  producer  of  every  other  com- 
modity." 


CLASS    LEGISLATION  339 


XXI 


In  all  these  cooperative  movements  farmers  are  capital- 
ists just  as  much  as  makers  of  iron  and  steel  are  capitalists. 
In  the  article  referred  to  it  is  said  the  farmers  of  certain 
grain-growing  states  own  i,6oo  grain  elevators  and  "have 
invested  about  $15,000,000."  Few  steel  companies  have 
that  investment. 

The  Tamarack  cooperative  association  of  Michigan  on 
February  i8th,  191 1,  declared  to  purchasers  of  goods  its 
twentieth  annual  dividend,  $104,821.60,  equal  to  162  per 
cent,  on  its  capital  stock.  Since  its  organization  this  so- 
ciety has  done  a  business  of  $8,113,917.85  and  returned 
to  its  members  rebates  of  $938,033.67.  Few  manufacturing 
or  mercantile  concerns  of  anything  like  the  same  size  can 
make  equal  showing. 

In  January,  1906,  the  Texas  truck  growers  organized 
their  association  "with  a  capital  of  $10,000.  Shares  were 
to  be  sold  at  $1  each,  but  every  member  was  required  to  buy 
at  least  five  shares,  he  was  required,  however,  to  pay  only 
thirty  per  cent,  of  his  subscription  at  the  beginning.  Thus 
any  farmer  could  easily  join  the  organization.  Growers  of 
about  seventy-five  per  cent,  of  the  crop  for  1906  became 
members,  and  that  year  the  association  marketed  900  car- 
loads. In  1909  it  handled  2,500  carloads  with  an  approxi- 
mate value  of  $1,500,000." 

In  its  capitalization,  paying  in  of  only  thirty  per  cent., 
its  control  of  the  industry,  and  its  rapid  development,  the 
history  of  this  association  reads  like  the  story  of  a  New 
Jersey  trust  in  the  deft  hands  of  Wall  street  promoters — but 
it  is  nothing  of  the  kind,  it  is  simply  the  natural  and  logical 
banding  together  of  a  number  of  farmers  to  get  better  prices 
for  what  they  raise. 


340  THE  NEW  COMPETITION 


XXII 

In  this  cooperative  movement  the  farmer — though  he 
may  not  realize  it — stands  shoulder  to  shoulder  with  the 
manufacturer;  the  labor  unionist  shoulder  to  shoulder  with 
his  employer. 

The  problem  is  a  large  one  and  demands  the  harmonious 
efforts  of  all  to  solve  it. 

Just  now  the  farmer  clamors  for  a  more  drastic  Sher- 
man law.  The  labor  unionist  has  been  hurt  by  that  same  law 
and  clamors  for  some  amendment  or  interpretation  that  will 
exempt  his  union,  and  yet  smash  the  employers'  combina- 
tion. 

The  far-seeing  labor-leader  is  already  calling  a  halt  upon 
indiscriminate  assaults  upon  associations  of  employers,  he 
sees  that  their  cooperation  is  essential  if  his  union  is  to  sur- 
vive. 

A  century  ago  the  labor  union  was  as  obnoxious  to  the 
public  and  to  legislatures  as  a  trust  is  to-day.  The  union 
has  outlived  all  that  odium,  and  is  condemned  to-day  only 
for  what  it  does  that  is  unfair  or  criminal. 

The  time  will  come  when  unions  of  manufacturers  and 
other  classes  will  be  treated  as  legal  and  natural  and  be  con- 
demned only  for  what  they  do  that  is  unfair  or  criminal. 

Union  per  se  will  not  be  a  crime  in  any  class. 


XXIII 

Not  only  have  legislatures,  as  already  shown,  recognized 
the  legal  and  economic  status  of  labor  unions,  but  the  courts 
in  almost  countless  cases  have  approved  their  existence,  ap- 
proved them  as  combinations  for  the  purpose  of  control- 
ling wages. 


CLASS    LEGISLATION  34 1 

The  Court  of  Appeals  of  New  York  said : 

"In  the  general  consideration  of  the  subject,  it  must 
be  premised  that  the  organization  or  the  cooperation  of 
workingmen  is  not  against  any  public  policy.  Indeed,  it 
must  be  regarded  as  having  the  sanction  of  the  law  when  it 
is  for  such  legitimate  purposes  as  that  of  obtaining  an  ad- 
vance in  the  rate  of  wages  or  compensation  or  of  maintain- 
ing 'such  rate.  It  is  proper  and  praiseworthy,  and  perhaps 
falls  within  that  general  view  of  human  society  which 
perceives  an  underlying  law  that  men  should  unite  to 
achieve  that  which  each  by  himself  cannot  achieve,  or  can 
achieve,  less  readily."  ^ 

President  Taft  when  on  the  bench  said: 

"It  may  be  conceded  in  the  outset  that  the  employees 
of  the  receiver  had  the  right  to  organize  into  or  to  join  a 
labor  union  which  should  take  joint  action  as  to  their 
terms  of  employment.  It  is  of  benefit  to  them  and  to  the 
public  that  laborers  should  unite  in  their  common  interest 
and  for  lawful  purposes.  They  have  labor  to  sell.  If  they 
stand  together  they  are  often  able,  all  of  them,  to  com- 
mand better  prices  for  their  labor  than  when  dealing  singly 
with, rich  employers,  because  the  necessities  of  the  single 
employee  may  compel  him  to  accept  any  terms  offered. 
The  accumulation  of  a  fund  for  the  support  of  those  who 
feel  that  the  wages  offered  are  below  market  prices  is  one 
of  the  legitimate  objects  of  such  an  organization.  They 
have  the  right  to  appoint  officers  who  shall  advise  them 
as  to  the  course  to  be  taken  by  them  in  their  relations  with 
their  employer.  They  may  unite  with  other  unions.  The 
officers  they  appoint,  or  any  other  person  to  whom  they 
choose  to  listen,  may  advise  them  as  to  the  proper  course 
to  be  taken  by  them  in  regard  to  their  employment,  or,  if 
they  choose  to  repose  such  authority  in  any  one,  may  order 
them,  on  pain  of  expulsion  from  their  union,  peaceably 
to  leave  the  employ  of  their  employer  because  any  of  the 
terms  of  their  employment  are  unsatisfactory."  ^ 

*  Curran  vs.  Galen  et  al.  (1897),  152  N.  Y.  33,  46  N.  E.  R.  297. 
'Thomas  vs.  Cm.  N.  O.  &  T.  P.  Ry.,  62  Fed.  Rep.  803. 


342  THE  NEW  COMPETITION 

Labor  has  achieved  its  emancipation,  it  has  won  the 
right  to  combine  to  control  wages. 

Farmers  have  practically,  though  not  so  explicitly, 
achieved  their  emancipation,  they  are  tacitly  conceded  the 
right  to  combine  to  advance  prices. 

It  isjcertain  that  in  the  near  future  employers  generally — 
manufacturers,  merchants,  producers  of  all  classes,  will 
achieve  their  emancipation,  will  win  the  right  to  combine  to 
regulate  the  prices  of  what  they  have  to  sell. 

At  present  the  country  is  in  the  anomalous  and  highly 
unstable  condition  of  being  half  free,  half  slave.  Labor- 
ers are  entirely  free  to  combine;  farmers  are  half  free, 
half  slave;  manufacturers,  merchants  and  dealers  are  all 
slave. 

Even  railroads  are  better  off  than  manufacturers  and 
dealers ;  they  combine  to  fix  rates,  though  the  law  in  terms 
forbids.  Railroads  must  act  in  concert  regarding  rates  and 
therefore  they  do.  Because  of  this  fact  President  Roose- 
velt twice  urged  Congress  to  amend  the  law  so  as  to  per- 
mit the  roads  to  do  legally  what  they  are  now  forbidden  to 
do,  but  compelled  by  conditions  to  accomplish  indirectly. 


XXIV 

Manufacturers  and  dealers  are  punished  for  simply  com- 
bining; courts  even  go  so  far  as  to  point  out  that  the  par- 
ticular combination  under  investigation  may  have  done  no 
one  any  harm,  may  even  have  done  good. 

The  State  of  Missouri  filed  suit  against  the  Interna- 
tional Harvester  Company  of  America.^     When  the  case 

*  The  International  Harvester  Company  of  America  is  a  Wisconsin 
corporation;  it  is  the  selling  corporation  for  the  products  of  the  Inter- 
national Harvester  Company  of  New  Jersey,  the  manufacturing  com- 
pany.   The  New  Jersey  company  owns  all  the  stock  of  the  Wisconsin 


CLASS    LEGISLATION  343 

reached  the  Supreme  Court  the  several  judges  in  their  opin- 
ion found : 

"In  1902,  when  the  negotiations  which  led  up  to  the 
organization  of  the  International  Harvester  Company  were 
begun,  competition  between  the  large  harvester  machine 
companies  in  the  United  States  was  such  as  to  reduce  the 
market  to  a  condition  that  was  deplorable  from  the  stand- 
point of  the  competing  companies  and  it  is  not  certain  that 
its  tendency  was  toward  the  ultimate  advantage  of  the 
consumer  of  those  machines.  Whilst  the  tendency  of  fair 
competition  is  to  produce  a  wholesome  condition  of  the 
market,  yet  competition  may  be  of  such  a  character  and 
so  designed  as  to  destroy  the  weaker  competitors,  leaving 
only  the  giant  in  the  field,  who  then  would  have  a  monopoly 
of  the  market." 

"The  evidence  also  shows  that  the  price  of  harvester 
machines  was  not  materially  higher  after  the  New  Jersey 
corporation  entered  the  field  than  it  was  before,  until  1908, 
when  it  was  increased  eight  or  ten  per  cent.,  whilst  in  the 
meantime  there  had  been  a  greater  increase  in  the  price  of 
the  material  and  labor  used  in  their  construction.  The 
evidence  also  shows  that  whilst  harvesting  machines  were 
the  chief  products  of  the  companies  absorbed  by  the  Inter- 
national Harvester  Company,  that  company  has  greatly 
enlarged  its  business  and  extended  it  to  many  other  farm 
implements  and  has  thus  put  itself  in  competition  with  the 
many  concerns  that  theretofore  were  and  still  are  engaged 
in  manufacturing  such  other  farm  implements,  and  the 
farmers  generally  have  profited  thereby.  The  evidence  also 
shows  that  the  machines  manufactured  by  the  International 
Company  have  been  greatly  improved  in  quality,  and  the 
item  of  repair  material  has  been  reduced  in  price  and 
placed  within  closer  reach  of  the  farmer.  On  the  whole, 
the  evidence  shows  that  the  International  Harvester  Com- 
pany has  not  used  its  power  to  oppress  or  injure  the 
farmers  who  are  its  customers.'* 

"In  this  case  the  court  is  required  by  the  statute  to  pro- 
nounce a  judgment  of  condemnation  upon  a  combination 

corporation.    The  New  Jersey  company  had  no  plant,  and  maintained 
no  office  in  Missouri,  consequently  was  not  a  party  to  the  suit. 


344  THE  NEW  COMPETITION 

which  is  proved  by  the  facts  as  they  appear  in  this  record 
to  have  been  so  far  beneficial  to  the  community/*  ^ 

*In  Cote  vs.  Murphy  et  al.  (1894),  159  Pa.  St.  420,  the  court  said: 
"The  fixed  theory  of  courts  and  legislators  then  was  that  the  price 
of  everything  ought  to  be,  and,  in  the  absence  of  combination,  neces- 
sarily would  be,  regulated  by  supply  and  demand.  The  first  to  deny 
the  justice  of  this  theory,  and  to  break  away  from  it  was  labor;  and 
this  was  soon  followed  by  the  legislation  already  noticed,  relieving 
workmen  from  the  penalties  of  what  for  more  than  a  century  had  been 
declared  unlawful  combinations  or  conspiracies.  Wages,  it  was  argued, 
should  be  fixed  by  the  fair  proportion  labor  had  contributed  to  produc- 
tion; the  market  price,  determined  by  supply  and  demand,  might  or 
might  not  be  fair  wages,  often  was  not,  and  as  long  as  workmen  were 
not  free,  by  combination,  to  insist  on  their  right  to  fair  wages,  oppres- 
sion by  capital,  or,  which  is  the  same  thing,  by  their  employers,  fol- 
lowed. It  is  not  our  business  to  pass  on  the  soundness  of  the  theories 
which  prompt  the  enactment  of  statutes.  One  thing,  however,  is  clear: 
the  moment  the  legislature  relieves  one,  and  by  far  the  larger  number 
of  the  citizens  of  the  commonwealth  from  the  common-law  prohibitions 
against  combinations  to  raise  the  price  of  labor,  and  by  a  combina- 
tion the  price  was  raised,  down  went  the  foundation  on  which  the  com- 
mon-law conspiracy  was  based,  as  to  that  particular  subject.  Before 
any  legislation  on  the  question,  it  was  held  that  a  combination  of  work- 
men to  raise  the  price  of  labor,  or  of  employers  to  depress  it,  was  un- 
lawful, because  such  combinations  interfered  with  the  price,  which 
would  otherwise  be  regulated  by  supply  and  demand.  This  interfer- 
ence was  in  restraint  of  trade  or  business  and  prejudicial  to  the  public 
at  large.  Such  (a)  combination  made  an  artificial  price.  Workmen, 
by  reason  of  the  combination,  were  not  willing  to  work  for  what,  other- 
wise they  would  accept  Employers  would  not  pay  what  otherwise  they 
would  consider  fair  wages.  Supply  and  demand  consist  in  the  amount 
of  labor  for  sale,  and  the  needs  of  the  employer  who  buys.  If  more 
men  offered  to  sell  labor  than  are  needed,  the  price  goes  down,  and  the 
employer  buys  cheap.  If  fewer  than  required  offer,  the  price  goes  up, 
and  he  buys  dear.  As  every  seller  and  buyer  is  free  to  bargain  for 
himself,  the  price  is  regulated  solely  by  supply  and  demand.  On  this 
reasoning  was  founded  common-law  conspiracy  in  this  class  of  cases. 
But,  in  this  case,  the  workmen,  without  regard  to  the  supply  of  labor, 
or  the  demand  for  it,  agreed  upon  what,  in  their  judgment,  is  a  fair 
price,  and  then  combined  in  a  demand  for  payment  of  that  price.  When 
refused,  in  pursuance  of  the  combination  they  quit  work,  and  agree  not 
to  work  until  the  demand  is  conceded.  Further,  they  agree,  by  lawful 
means,  to  prevent  all  others,  not  members  of  the  combination,  from 
going  to  work  until  the  employers  agree  to  pay  the  price  fixed  by  the 
combination.  And  this,  as  long  as  no  force  was  used,  or  menaces  to 
person  or  property,  they  had  a  lawful  right  to  do;  and  so  far  as  is 
known  to  us,  the  rise  demanded  by  them  may  have  been  a  fair  one. 
But  it  is  nonsense  to  say  that  this  was  a  price  fixed  by  supply  and 
demand.    It  was  fixed  by  a  combination  of  workmen  on  their  combined 


CLASS    LEGISLATION  345 


XXV 


Enough  has  been  said  to  satisfy  the  impartial  reader  that 
the  drift  is  toward  larger  and  larger  cooperation,  and  that, 
too,  despite  attempts  to  legislate  to  the  contrary. 

Naturally  manufacturers  are  timid  about  entering  any 
form  of  association,  for  they  cannot  know  at  what  moment 
they  may  be  indicted  as  criminals.  As  a  result  more  or  less 
demoralization  prevails  in  almost  every  industry,  demora- 
lization of  prices,  demoralization  of  methods.  All  the  evils, 
all  the  unfair,  oppressive  and  vicious  practices  of  the  old 
competition  prevail. 

The  basic  proposition  of  the  Open-Price  Association, 
namely,  that  men  have  the  right  to  publish  prices  and  make 
known  all  conditions  surrounding  business,  is  so  far  be- 
yond debate  or  question  that  it  is  practically  axiomatic;  if 
they  have  that  right  it  goes  without  saying  they  have  the 
right  to  cooperate  in  any  manner  necessary  to  gather  and 
publish  the  information. 

Spreading  of  knowledge  of  facts  and  conditions  is  one 
of  the  enlightened  efforts  of  the  age.  The  theory  is  that 
if  a  man  can  be  fully  informed  regarding  all  he  has  to  con- 
tend with,  he  will  be  in  a  better  position  to  get  fair  wages 
and  fair  prices. 

The  prime  object  of  the  Department  of  Agriculture  is 
to  enable  farmers  to  get  better  crops  and  better  prices.  The 

judgment  as  to  its  fairness;  and,  that  the  supply  might  not  lessen  it, 
they  combined  to  prevent  all  other  workmen  in  the  market  from  accept- 
ing less.  Then  followed  the  combination  of  employers,  not  to  lower 
the  wages  theretofore  paid,  but  to  resist  the  demand  of  a  combination 
for  an  advance;  not  to  resist  an  advance  which  would  naturally  follow 
a  limited  supply  in  the  market,  for  the  supply,  so  far  as  the  workmen 
belonging  to  the  combination  were  concerned,  was,  by  combination, 
wholly  withdrawn,  and  as  to  workmen  other  than  members,  to  the  ex- 
tent of  their  power,  they  kept  them  out  of  the  market.  By  artificial 
means  the  market  supply  was  wholly  cut  off." 


346  THE  NEW  COMPETITION 

prime  object  of  the  Department  of  Commerce  and  Labor 
is  to  enable  labor  to  get  better  terms  and  better  wages. 

It  ought  to  be  the  object  of  some  department  to  help 
manufacturers  and  dealers  to  get  better  returns  for  better 
products. 

But  so  far  the  only  solicitude  betrayed  by  any  depart- 
ment of  the  government  regarding  manufacturers  and  deal- 
ers is  to  force  them  to  sell  at  the  lowest  prices  under  the 
most  adverse  conditions. 

Class  legislation  and  discrimination  must  go. 


XXVI 

Since  this  chapter  was  written,  Congress  has  passed 
section  6  of  the  Clayton  Law,  and  the  Supreme  Court  of 
the  United  States  has  held  constitutional  exemptions  of 
labor,  agricultural,  and  horticultural  organizations  from 
anti-trust  statutes.^ 

1  International  Harvester  Co.  of  America  vs.  State  of  Missouri. 
For  a  very  complete  review  of  the  decisions  pro  and  con  on  this,  see 
the  briefs  filed  in  that  case  and  the  authorities  cited  from  the  briefs 
in  the  report  of  the  opinion,  234  U.  S.  Sup,  Ct.,  Lawyers'  Ed.,  pp. 
197-202. 


CHAPTER  XX 
CONSTRUCTIVE  LEGISLATION 


We  are  on  the  eve  of  great  things. 

For  more  than  ten  years  the  country  has  been  tuggfing  at 
the  leash  of  legislation  that  hinders  progress.^ 

The  Sherman  law  is  destructive  in  purpose  and  applica- 
tion. State  "anti-trust"  acts  are  framed  to  tear  down  and 
destroy — what  ? 

Cooperative  movements  that  are  the  logical,  the  inevi- 
table results  of  economic  conditions. 


II 


Law  has  so  little  meaning  to  most  men  they  look  upon 
it  as  a  cure-all  and  give  it  in  large  doses  for  every  ill,  where- 
as of  all  remedies  it  is  the  most  difficult  to  rightly  adminis- 
ter. 

*"In  my  judgment,  the  present  law  against  pools,  trusts,  and 
combinations  is  ineffective  to  protect  the  people  against  combinations 
of  capital.  The  courts  may  dismember  an  organization,  but  they  will 
hardly  attempt  to  confiscate  its  property;  so  that,  after  dismemberment, 
the  ownership  and  control  will  continue  substantially  as  before.  To 
permit  combinations  to  exist,  and  at  the  same  time  secure  to  the  people 
the  natural  and  legitimate  benefits  of  such  combination,  is  a  problem 
not  yet  solved.  To  forbid,  as  the  law  in  question  does,  the  existence 
of  all  combinations  that  lessen  competition  compels  a  halt  in  the  natural 
march  of  industrial  development,  and  deprives  the  people  of  the  benefits 
which  should  result  from  improved  business  methods." — By  Judge 
Ferriss,  in  State  vs.  International  Harvester  Co.  of  America,  237  Mis- 
souri 369. 

347 


348  THE  NEW  COMPETITION 

Men  are  so  perversely  constituted  they  seem  to  prefer 
compulsion  to  cooperation ;  they  call  upon  the  state  to  com- 
pel them  by  law  to  do  what  they  ought  to  do  for  them- 
selves, to  frame  rules  of  conduct  they  should  voluntarily 
devise  for  their  own  protection. 

While  it  is  true  the  rise  of  freedom  is  the  development 
of  law,  it  is  also  true  that  the  history  of  the  law  is  one  long 
story  of  man's  fight  for  liberty. 

Which  is  but  another  way  of  saying  that  the  rules  of 
conduct  which  define — and  by  defining,  create — liberty, 
yield  slowly  and  stubbornly  to  the  irresistible  forces  of 
progress,  thereby  making  law  to  appear  a  laggard  in  the 
march  of  events,  but  that  is  its  value,  for  if  it  yielded  to 
every  passing  impulse,  every  wave  of  opinion,  it  would  not 
be  law,  but  anarchy. 

Is  it  not  strange  how  men  in  all  ages  appeal  to  this 
conservative  force  to  accomplish  the  most  radical  things — 
appeal  to  law  to  overturn  law,  pass  laws  to  do  things  repug- 
nant to  the  fundamental  concepts  of  law? 

Except  for  mischief,  a  law  is  of  no  effect  unless  it  ex- 
presses what  the  people  really  want  and  what  they  believe  to 
be  fair  and  right. 

Ill 

This  is  a  big  country  and  does  things  in  a  big  way ;  it  is 
a  rich  country  and  it  does  things  with  the  reckless  prodigal- 
ity of  suddenly  acquired  wealth.  Whatever  we  do  is  done 
on  the  scale  of  ninety  millions  of  people  and  one  hundred 
and  thirty  billions  of  riches. 

We  have  grown  so  fast,  made  money  so  fast,  that  we  are 
wasteful,  extravagant,  careless.  We  do  things  we  ought  not 
to  do  both  in  the  making  and  in  the  spending.  We  have 
taken  little  thought  of  the  morrow  because  the  day  is  filled 
with  such  golden  opportunifie^. 


CONSTRUCTIVE  LEGISLATION         349 

But  our  speed  has  become  so  headlong,  developments 
have  piled  upon  developments  so  fast,  changes  followed 
changes  with  such  breathless  rapidity,  the  people  are  fright- 
ened; the  very  size  of  things  startles  them.  As  fortunes 
got  bigger  and  bigger,  and  corporations  became  more  and 
more  powerful,  and  trusts  were  formed,  it  was  thought 
time  to  call  a  halt,  and  laws  were  passed  to  curb — progress! 


IV 


These  laws  are  not  well  drawn  because  what  they  were 
aimed  at  was  not  well  understood. 

The  "trust"  was  looked  upon  as  a  thing  apart,  as  a  mon- 
ster to  be  annihilated.  It  was  not  clearly  seen  that  the  trust 
is  just  as  legitimate,  just  as  logical  a  development  of  eco- 
nomic conditions  m  this  marvelous  country  as  are  the  cor- 
poration and  the  partnership.  The  trust  is  simply  one  of 
our  big  ways  of  doing  things,  and  in  and  of  itself  the  billion 
dollar  corporation  doing  business  in  the  world  at  large  is  no 
more  to  be  feared  than  the  million  dollar  corporation  doing 
business  in  a  small  town,  or  the  ten  thousand  dollar  part- 
nership doing  business  in  the  country  village,  each  may 
dominate  its  particular  sphere,  and  dominate  it  in  the  same 
way  and  by  precisely  the  same  methods,  and  each  may  abuse 
its  powers. 


Of  all  peoples  on  the  face  of  the  globe  the  American 
people  ought  to  be  the  least  fearful  of  mere  size. 

But  we  are — or  rather  have  been,  for  fear  of  size  is  pass- 
ing. We  have  framed  laws  aimed  not  at  methods  but  at 
magnitude.  We  passed  the  Sherman  Act  which  is  aimed 
at  size,  and  for  many  years  the  courts  applied  that  act  to 


350  THE  NEW  COMPETITION 

combinations  irrespective  whether  the  things  they  did  were 
fair  and  reasonable  or  not,  but  of  late  a  change  has  come 
over  the  country,  our  eyes  are  becoming  accustomed  to 
magnitude,  no  longer  do  we  jump  at  the  sight  of  a  trust  like 
a  small  boy  at  a  shadow  in  the  dusk;  we  are  beginning 
to  see  that  size  has  its  advantages  as  well  as  its  disadvan- 
tages; that  it  enables  men  to  do  things  on  a  scale  com- 
mensurable with  the  wealth,  the  resources,  the  power  of 
the  country — in  short  that  the  much  feared,  much  hated 
trust  may  have  its  place  in  the  economy  of  national  and 
international  trade. 


VI 


When  the  Sherman  law  was  passed  there  were  so  few 
trusts  in  existence  no  one  knew  much  about  them;  now — 
twenty  odd  years  after — there  are  so  many  in  every  state, 
in  every  city,  in  almost  every  country  town  that  the  aver- 
age school  boy  knows  all  about  them.  They  have  been  so 
denounced,  debated,  discussed  that  no  one  is  ignorant  of 
their  number,  their  steady  increase,  and  their  uses. 

The  common  people  have  come  to  see  clearly  that  there 
is  very  little  difference  between  combinations — trusts — of 
labor,  and  combinations  of  farmers,  merchants,  manufactur- 
ers. They  all  have  in  view  the  one  end — better  returns  for 
their  efforts. 

As  a  natural  result  the  old  destructive  laws  have  fallen 
into  disrepute,  and  there  is  a  wide  demand  for  constructive 
legislation. 

VII 

Many  so-called  progressives,  or  radicals,  loudly  oppose 
the  repeal  of  the  Sherman  law,  but  even  they  admit  the 
absolute  need  of  supplemental  legislation,  and  it  is  quite 


CONSTRUCTIVE  LEGISLATION         35 1 

apparent  from  the  bills  they  have  introduced  or  advocated 
in  Congress  that  while  they  oppose  all  direct  attacks  on  the 
Sherman  law,  they  concede  it  is  obsolete  and  mischievous  in 
its  operations. 

The  more  the  entire  subject  is  debated,  the  clearer  it  is 
that  public  sentiment  is  crystallizing  in  favor  of  legislation 
that  will  regulate  instead  of  destroy,  that  will  get  all  there 
is  of  good  in  trusts  and  large  combinations  and  suppress  all 
there  is  of  evil,  and  out  of  this  sentiment  will  spring  the 
much  more  vital  conviction  that  before  trusts  and  large 
corporations  can  be  effectually  dealt  with  all  that  is  evil, 
oppressive  and  unfair  in  the  practices  of  the  individual 
must  be  suppressed. 

In  other  words,  we  are  on  the  road  that  leads  straight 
toward  the  adoption  of  higher  standards  of  conduct  in 
commerce  and  industry. 


VIII 


The  agitation  against  trusts  has  led  to  a  critical  ex- 
amination of  the  conduct  of  the  individual  and  men  see 
to-day  as  they  have  never  seen  before  that  the  trouble  lies 
within  and  not  without. 

A  law  aimed  at  a  ten  million  dollar  corporation  or  a 
billion  dollar  trust  because  of  its  size  is  no  law  at  all,  it  is 
merely  an  expression  of  blind  prejudice  since  the  corpora- 
tion or  trust  half  the  size  may  do  things  far  more  oppressive 
and  unfair. 

The  large  corporation  may  need  more  careful  watching, 
greater  publicity,  because  its  power  is  so  great,  and  without 
watchfulness  on  the  part  of  the  public  and  publicity  in  all 
its  operations  it  may  be  tempted  to  abuse  its  advantages,  but 
kept  within  the  bounds  of  fair  and  straightforward  dealing, 
its  size  may  be  of  great  value  to  the  community. 


352  THE  NEW  COMPETITION 


IX 

It  is  easy  and  instinctive  to  condemn  what  we  do  not 
understand.  It  is  much  easier  to  pass  a  law  aimed  at  this, 
that  or  the  other  object,  than  it  is  to  frame  a  law  that  will 
reach  and  correct  abuses.  It  is  far  easier  to  frame  a  law 
that  will  hit  the  Standard  Oil  Company  than  it  is  to  frame 
one  that  will  search  out  and  condemn  oppressive  and  unfair 
methods  whether  used  by  a  corporation  or  an  individuaL 


Anti-Trust  legislation  has  been  drawn  along  the  lines  of 
least  resistance ;  it  is  safe  to  say  that  no  law  has  been  passed 
against  trusts  and  monopolies  that  has  not  been  framed  with 
some  conspicuous  trust  in  mind,  and  in  probably  every  in- 
stance, the  Standard  Oil  Company.  That  legislation  so  im- 
portant and  far-reaching  in  its  general  consequences  should 
turn  on  popular  hatred  for  one  large  company  is  a  confes- 
sion of  weakness. 

XI 

But  the  tide  has  turned,  there  is  a  loud  and  louder  de- 
mand for  laws  that  will  remedy  abuses — no  matter  by  whom 
practiced.  There  is  a  demand  for  better  standards  of  busi- 
ness morality,  for  a  better  business  code.  There  is  an  op- 
portunity for  statesmanship  of  the  highest  order.  Our  Rep- 
resentatives and  Senators  may  not  realize  the  extent  and  the 
character  of  this  golden  opportunity;  most  of  them  may 
cling  close  to  the  ground  to  catch  the  murmurings  of  shift- 
ing public  opinion ;  most  of  them  may  try  to  talk  and  vote 
as  they  think  the  people  would  like  to  have  them  talk  and 
vote;  few  may  understand  that  in  the  long  run  the  people 


CONSTRUCTIVE  LEGISLATION         353 

love  and  respect  the  men  who  talk  and  vote  as  their  con- 
sciences dictate. 

But  there  are  men  who  are  looking  far  ahead,  who  are 
anxious  to  have  a  part  in  doing  things  that  will  help  make 
the  history  of  their  country,  who  wish  to  have  a  part  in 
the  adoption  of  an  enlightened  constructive  policy  and  the 
future  depends  upon  their  conscientious  efforts. 

The  much  vaunted  Sherman  law  will  pass  into  economic 
history  along  with  such  English  laws  as  those  against  "re- 
grating,"  **  forestalling,"  and  "engrossing,"  and  laws 
against  labor  unions — as  one  of  man's  many  futile  attempts 
to  check  evolution.  Its  chief  value  lies  in  the  fact  it  has 
aroused  the  country,  made  men  see  the  necessity  of  doing 
something  of  affirmative  value. 


XII 


More  than  once  in  the  preceding  chapters  we  have  indi- 
cated some  of  the  things  the  new  laws  will  provide  for  and 
against;  a  brief  summary,  however,  will  not  be  out  of  place 
in  these  concluding  pages. 

Any  law  that  is  formed  should  be  comprehensive  in  its 
scope  and  with  two  prime  objects  in  view. 

A.  Publicity — the  frank  and  free  disclosure  of  all  com- 
petitive practices. 

B.  Reform — ^the  suppression  of  all  dishonest,  fraudu- 
lent, oppressive  and  unfair  business  methods.  Publicity  will 
accomplish  three-fourths  of  the  reforms. 

The  law  should  provide  for: 

I.  A  Federal  Commission  to  hear  and  adjust  all  con- 
troversies arising  under  the  law.  Inasmuch  as  the  principles 
governing  the  deliberations  of  the  proposed  commission 
would  be  essentially  the  same  as  the  principles  controlling 
the  decisions  of  the  Interstate  Commerce  Commission,  the 
two  should  be  branches  of  the  one  tribunal;  this  would  be 


354  THE  NEW  COMPETITION 

all  the  more  appropriate  in  view  of  the  additional  fact  that 
many  important  trade  and  industrial  questions  could  not  be 
determined  without  taking  into  consideration  rates  and 
questions  of  transportation. 

This  Commission  would  need  to  have  branch  courts  or 
divisions  in  different  sections,  with,  possibly,  agents  or  dep- 
uty commissioners  in  every  city  of  importance;  say  every 
federal  judicial  district — these  are  matters  of  detail. 

2.  Every  corporation  engaged  in  interstate  commerce 
should  be  required  to  take  out  a  license  and  file  certain  gen- 
eral information  regarding  capitalization,  capacity,  output, 
etc.,  etc.,  and  such  other  details  as  the  development  of  the 
new  plan  shows  to  be  important.  Federal  incorporation 
may  be  desirable  but  is  not  essential. 

Whether  individuals  and  partnerships  engaged  in  inter- 
state commerce  should  come  under  all  the  provisions  of 
the  law  is  a  matter  of  serious  consideration,  the  law  may, 
and  very  properly  should,  recognize  the  distinction  that  ex- 
ists between  the  individual  or  the  partnership  and  the  cor- 
poration. The  latter  being  a  legal  entity  and  wholly  de- 
pendent upon  the  law  for  permission  to  do  business  at  all, 
may  be  subjected  to  more  rigid  requirements.  In  fact,  if  it 
should  be  so  desired,  the  law  at  first  might  be  made  to  in- 
clude only  corporations,  leaving  individuals  to  come  under 
its  provisions  later  as  they  become  convinced  of  the  value  of 
publicity  and  frankness. 

But  if  individuals  are  to  be  allowed  to  complain  of  the 
acts  of  corporations,  they,  in  turn,  should  be  subject  to  the 
same  rules  of  fair  conduct,  for  an  individual,  having  less 
at  stake,  may  hurt  a  corporation  by  unfair  competition  more 
than  the  corporation  can  hurt  him. 

3.  Require  the  use  of  a  uniform  system  of  accounting, 
especially  of  cost  accounting,  and  make  any  intentional  fail- 
ure to  keep  absolutely  truthful  and  accurate  records  of  all 
purchase!  and  all  sales  a  punishable  offense. 


CONSTRUCTIVE  LEGISLATION         355 

4.  Make  the  following  acts  punishable  : 

(a)  Billing  at  other  than  actual  terms. 

(b)  Secret  rebates,  terms,  commissions. 

(c)  Shipping  of  quantities  or  qualities  of  goods  other 
than  those  described  in  invoices. 

(d)  False  or  misleading  statements  regarding  (a) 
costs,  (b)  sales,  and  (c)  prices  charged  others. 

(e)  Refusal  to  tell  one  buyer  when  lower  prices  have 
been  charged  others  for  similar  goods.  This  provision 
would  do  more  than  anything  else  to  bring  about  fair  and 
frank  trading. 

5.  Make  the  following  acts  subject  to  rigid  investigation 
on  complaint  of  any  party  claiming  to  be  injured,  and  make 
them  pu'nishable  if  it  should  appear  they  were  done  with 
intent  to  injure  anyone. 

(a)  Selling  at,  or  below,  cost. 

(b)  Selling  to  one  man  on  better  terms  than  are  charged 
his  competitor. 

(c)  Selling  in  one  locality  at  different  prices  from  those 
charged  in  another — all  other  conditions  being  equal. 

The  foregoing  general  provisions  constitute  a  business 
code  appropriate  to  all,  whether  individuals,  partnerships, 
corporations  or  trusts — it  would  tend  toward  fair  trade  and 
higher  business  standards} 

The  following  have  to  do  with  the  formation  of  associa- 
*ions  to  help  trade  conditions,  and  which  would  be  useful 
in  applying  the  principles  of  the  new  code.  In  fact,  without 
associations  it  would  be  impossible  for  a  federal  commis- 
sion to  enforce  the  proposed  provisions  which  are  general  in 
character.  Only  the  parties  engaged  in  a  trade  or  industry 
are  in  a  position  to  work  out  the  details,  and  formulate  the 
rules  necessary  to  compel  obedience.  The  public  does  not 
realize  how  eager  the  best  business  men  are  to  do  some  of 
these  very  things,  how  gladly  they  would  '"blacklist"  the 

*  Sec  German  code,  appendix,  pp.  358,  359. 


356  THE  NEW  COMPETITION 

manufacturer  or  dealer  who  resorts  to  tricky  or  unfair  prac- 
tices, but  the  law  as  it  stands  does  not  permit  them  to  get  to- 
gether and  act  as  a  unit ;  the  following  suggestions  are  mad-e 
to  meet  this  condition : 

6.  Remove  all  restrictions  upon  the  organization  of  as- 
sociations and  combinations  to  control  occupations,  trades 
and  industries;  on  the  contrary  directly  encourage  such 
organizations,  encourage  men  to  do  for  themselves  the 
things  that  should  be  done,  but  under  the  following  condi- 
tions : 

(a)  Each  association  shall  file  its  articles  of  agreement 
and  the  details  of  its  organization  with  the  proper  federal 
department. 

(b)  Its  meetings  shall  be  open  to  any  representative  of 
the  government  who,  in  the  performance  of  his  duties, 
wishes  to  attend,  and  he  shall  have  power  to  examine  all 
records,  files  and  papers,  and  to  question  officers  and  mem- 
bers regarding  not  only  the  transactions  of  the  association, 
but  their  own  acts  in  furtherance  of  the  objects  of  the  asso- 
ciation. 

(c)  Power  in  the  federal  commission,  upon  complaint 
of  any  party,  to  review  the  acts  of  the  association,  if  neces- 
sary revise  and  fix  prices  and  conditions  of  purchases  and 
sales,  award  damages,  enforce  penalties,  dissolve  the  asso- 
ciation. 

(d)  Power,  also,  to  require  publicity  and  to  name  con- 
ditions under  which  representatives  of  (a)  employees,  (b) 
parties  who  sell  to  members  of  association,  and  (c)  cus- 
tomers, may  attend  the  meetings  of  the  association. 

With  these  broad  general  provisions  the  country  would 
have  nothing  to  fear  from  combinations  however  large. 
Their  influence  would  be  beneficial,  and  each  would  work 
out  for  its  own  occupation,  trade  or  industry  such  rules  as 
would  be  necessary  for  compliance  with  the  letter  and  spirit 
of  the  new  code. 


CONSTRUCTIVE  LEGISLATION        '357 

Every  objection  that  can  be  urged  against  these  sugges- 
tions was  urged  with  no  greater  force  against  the  interstate 
commerce  law,  yet  sharply  as  that  law  has  been  criticized 
by  railroad  men  here  and  there,  the  railroad  world  as  a 
whole  would  not  go  back  to  the  old  demoralized  conditions 
that  prevailed  in  the  days  of  unfettered  competition,  the 
days  of  secret  rebates,  of  arbitrary  and  unfair  discrimina- 
tion in  rates. 

Ten  years  from  now  manufacturers  will  look  back  upon 
existing  conditions  in  the  industrial  world  as  equally  bar- 
baric. 

XIII 

It  is  gratifying  to  note  that  in  the  Clayton  and  Trade 
Commission  Laws  some  of  the  things  urged  in  this  chapter 
are  on  the  way  to  accomplishment. 

The  danger  ahead  is  tliat  the  country  has  taken  so 
advanced  a  forward  step  the  reaction  may  be  great. 

Reaction  ever  follows  action,  and  already  the  signs  are 
unmistakable  that  the  country  is  not  only  disposed  to  call 
a  halt  on  further  economic  experiments,  but  even  inclined 
to  retrace  its  steps. 

For  six  or  eight  years  a  radical  spirit  prevailed;  at  the 
moment  ^  a  conservative  tendency  is  obvious. 

The  future  of  the  two  new  laws  depends  almost 
entirely  upon  the  wisdom  of  the  new  Trade  Commission. 
It  will  be  only  too  easy  for  that  Commission  to  so  admin- 
ister the  law  as  to  court  the  fate  of  the  unlucky  Commerce 
Court,  for,  like  the  Commerce  Court,  the  Commission  faces 
a  feeling  of  distrust  due  to  the  underlying  feeling  of  uncer- 
tainty regarding  what  it  will  do  and  what  the  laws  mean. 
Its  powers  are  so  great  people  are  afraid. 

This  feeling  of  apprehension  may  be  easily  and  quickly 
allayed,  and  it  is  safe  to  assume  that  the  Commission,  com- 
posed as  it  is  of  lawyers,  experts,  and  business  men,  will 

^  Spring  of  1915. 


358  THE  NEW  COMPETITION 

lose  no  time  in  demonstrating  its  power  for  good — and 
the  power  is  there. 

The  personnel  of  the  Commission  is  excellent  and  its 
Chairman  is  not  only  a  lawyer,  but  his  experience  as  head 
of  the  Bureau  of  Corporations  has  given  him  wide  and 
intimate  knowledge  of  business  and  competitive  conditions. 


APPENDIX  I 
CONDITIONS    IN    CANADA 

The  Canadian  Criminal  Code  makes  it  an  indictable 
offense,  punishable  by  fine  and  imprisonment,  for  any  one  to 
conspire,  combine  or  agree  with  any  person  or  any  transpor- 
tation company  to  unduly  limit  the  facilities  for  transporting, 
producing,  manufacturing,  supplying,  storing  or  dealing  in 
any  article  or  commodity  which  may  be  the  subject  of  trade 
or  commerce;  or,  to  restrain  or  injure  trade  or  commerce  in 
relation  to  any  such  article  or  commodity;  or,  to  unduly  pre- 
vent, limit,  or  lessen  the  manufacture  or  production  of  any 
such  article  or  commodity,  or  to  unreasonably  enhance  the 
price  thereof;  or,  to  unduly  prevent  or  lessen  competition  in 
the  production,  manufacture,  purchase,  barter,  sale,  transpor- 
tation, or  supply  of  any  such  article  or  commodity,  or  in  the 
price  of  insurance  upon  person  or  property. 

In  1910  an  Act  was  passed  providing  for  the  investigation 
of  combinations,  monopolies,  trusts,  and  mergers.  This  Act 
is  a  step  in  advance  of  anything  attempted  in  this  country.  It 
provides,  first  of  all,  for  the  appointment  of  a  Registrar  of 
Boards  of  Investigation.    It  then  goes  on : 

"Where  six  or  more  persons,  British  subjects  resident  in 
Canada  and  of  full  age,  are  of  opinion  that  a  combine  exists, 
and  that  prices  have  been  enhanced,  or  competition  restricted 
by  reason  of  such  combine,  to  the  detriment  of  consumers  or 
producers,  such  persons  may  make  an  application  to  a  judge 
for  an  order  directing  an  investigation  into  such  alleged 
combine. 

"2.  Such  application  shall  be  in  writing,  addressed  to  the 
judge,  and  shall  ask  for  an  order  directing  an  investigation 
into  the  alleged  combine,  and  shall  also  ask  the  judge  to  fix 
a  time  and  place  for  the  hearing  of  the  applicants  or  their 
representative. 

359 


36o  THE  NEW  COMPETITION 

"3.  The  application  shall  be  accompanied  by  a  statement 
setting  forth : 

*'(a)  The  nature  of  the  alleged  combine  and  the  persons  be- 
lieved to  be  concerned  therein. 

"(b)  The  manner  in  which  the  alleged  combine  affects 
prices  or  restricts  competition,  and  the  extent  to  which  the 
alleged  combine  is  believed  to  operate  to  the  detriment  of  con- 
sumers or  producers. 

"(c)  The  names  and  addresses  of  the  parties  making  the 
application  and  the  name  and  address  of  one  of  their  number, 
or  of  some  other  person  whom  they  authorize  to  act  as  their 
representative  for  the  purposes  of  this  Act  and  to  receive  com- 
munications and  conduct  negotiations  on  their  behalf. 

"4.  The  application  shall  also  be  accompanied  by  a  statu- 
tory declaration  from  each  applicant,  declaring  that  the  alleged 
combine  operates  to  the  detriment  of  the  declarant  as  a  con- 
sumer or  producer,  and  that  to  the  best  of  his  knowledge  and 
belief  the  combine  alleged  in  the  statement  exists,  and  that 
such  combine  is  injurious  to  trade,  or  has  operated  to  the  detri- 
ment of  consumers  or  producers  in  the  manner  and  to  the 
extent  described,  and  that  it  is  in  the  public  interest  that  an 
investigation  should  be  had  into  such  combine." 

Within  thirty  days  after  receiving  the  application,  the  judge 
is  to  fix  a  time  and  place  for  hearing  applicants.  At  such 
hearing  applicants  may  appear  in  person  or  by  counsel. 

"If,  upon  such  hearing,  the  judge  is  satisfied  that  there  is 
reasonable  ground  for  believing  that  a  combine  exists  which  is 
injurious  to  trade,  or  which  has  operated  to  the  detriment  of 
consumers  or  producers,  and  that  it  is  in  the  public  interest 
that  an  investigation  should  be  held,  the  judge  shall  direct  an 
investigation  under  the  provisions  of  this  Act;  or,  if  not  so 
satisfied,  and  the  judge  is  of  opinion  that  in  the  circumstances 
an  adjournment  should  be  ordered,  the  judge  may  adjourn 
such  hearing  until  further  evidence  in  support  of  the  applica- 
tion is  given,  or  he  may  refuse  to  make  an  order  for  an 
investigation." 

The  order  of  the  judge  directing  investigation  is  transmit- 
ted to  the  Registrar  by  registered  letter, 

"and  shall  be  accompanied  by  the  application,  the  statement,  a 
certified  copy  of  any  evidence  taken  before  the  judge,  and  the 
statutory  declarations.  The  order  shall  state  the  matters  to 
be  investigated,  the  names  of  the  persons  alleged  to  be  con- 


CONDITIONS   IN   CANADA  361 

cerned  in  the  combine,  and  the  names  and  addresses  of  one  or 
more  of  their  number,  with  whom,  in  the  opinion  of  the  judge, 
the  Minister  should  communicate,  in  order  to  obtain  the  recom- 
mendation for  the  appointment  of  a  person  as  a  member  of 
the  Board,  as  hereinafter  provided." 

Thereupon,  a  Board  of  Investigation  is  appointed,  consist- 
ing of  three  members,  one  of  whom  is  appointed  on  the  recom- 
mendation of  the  persons  who  made  the  complaint,  the  second 
on  the  recommendation  of  the  persons  against  whom  the  com- 
plaint is  made,  and  the  third  on  the  recommendation  of  the 
two  members  so  chosen. 

Provision  is  made  for  failure  of  parties  to  agree  on  mem- 
bers. The  third  member  of  the  Board  acts  as  its  chairman. 
Before  entering  upon  their  duties,  each  member  is  required 
to  take  an  oath,  the  form  of  which  is  prescribed  in  the  Act. 

"Upon  the  appointment  of  the  Board,  the  Registrar  shall 
forward  to  the  chairman  copies  of  the  application,  statement, 
evidence,  if  any,  taken  before  the  judge,  and  order  for  investi- 
gation, and  the  Board  shall  forthwith  proceed  to  deal  with  the 
matters  referred  to  therein. 

"The  Board  shall  expeditiously,  fully  and  carefully  inquire 
into  the  matters  referred  to  it,  and  all  matters  affecting  the 
merits  thereof,  including  the  question  of  whether  or  not  the 
price  or  rental  of  any  article  concerned  has  been  unreasonably 
enhanced,  or  competition  in  the  supply  thereof  unduly  re- 
stricted, in  consequence  of  a  combine,  and  shall  make  a  full 
and  detailed  report  thereon  to  the  Minister,  which  report  shall 
set  forth  the  various  proceedings  and  steps  taken  by  the  Board 
for  the  purpose  of  fully  and  carefully  ascertaining  all  the  facts 
and  circumstances  connected  with  the  alleged  combine,  includ- 
ing such  findings  and  recommendations  as,  in  the  opinion  of 
the  Board,  are  in  accordance  with  the  merits  and  requirements 
of  the  case. 

"2.  In  deciding  any  question  that  may  affect  the  scope 
or  extent  of  the  investigation,  the  Board  shall  consider  what 
is  required  to  make  the  investigation  as  thorough  and  complete 
as  the  public  interest  demands. 

"The  Board's  report  shall  be  in  writing,  and  shall  be  signed 
by  at  least  two  of  the  members  of  the  Board.  The  report  shall 
be  transmitted  by  the  chairman  to  the  Registrar,  together  with 
the  evidence,  taken  at  such  investigation  certified  by  the  chair- 
man, and  any  documents  and  papers  remaining  in  the  custody 


362  THE  NEW  COMPETITION 

of  the  Board.    A  minority  report  may  be  made  and  transmit- 
ted to  the  Registrar  by  any  dissenting  member  of  the  Board." 

In  the  event  the  persons  charged  are  found  guilty  of  any 
of  the  acts  complained  of  the  statute  provides  (i)  that  the 
Governor  in  Council  may  direct  that  competing  goods  be  ad- 
mitted into  Canada  free  of  duty.  (2)  That  if  the  exclusive 
rights  and  privileges  granted  under  a  patent  have  been  abused, 
information  may  be  filed  in  the  Exchequer  Court  praying  for 
judgment  revoking  such  patent.  (3)  A  penalty  not  exceeding 
$1,000.00  and  costs,  for  each  day  after  the  expiration  of  ten 
days,  or  such  further  extension  of  time  as  in  the  opinion  of 
the  Board  may  be  necessary,  from  the  date  of  the  publication 
of  the  report  of  the  Board  in  The  Canada  Gazette,  during 
which  such  person  so  continues  to  offend. 

"The  object  of  this  legislation,  as  expressed  in  the  last  an- 
nual report  of  the  Department  of  Labour,  is  to  'place  at  the 
disposal  of  the  people  a  readier  and,  it  is  believed,  a  more 
effective  means  than  is  now  available  in  Canada  of  disclosing 
and  of  remedying  the  abuses  of  combines  which  may  be 
formed,  whether  as  corporations,  monopolies,  trusts,  or  mer- 
gers, or  in  the  looser  forms  of  agreements,  understandings,  or 
arrangements,  for  the  purpose  of  unduly  enhancing  prices  or 
of  restricting  competition  to  the  detriment  of  consumers  or 
producers.*  In  the  last  annual  report  of  the  Department  of 
Labour,  a  chapter  was  devoted  to  this  measure,  and  the  text 
of  the  same  was  also  published  in  the  form  of  an  appendix."  ^ 

Up  to  the  present  time  (July  i,  191 2)  only  one  applica- 
tion has  been  made  and  one  Board  established,  and  that  in 
the  case  of  the  United  Shoe  Machinery  Company,  a  Canadian 
corporation.  Application  was  made  on  November  10,  19 10, 
but  proceedings  were  stayed  by  various  judicial  orders  until 
November,  191 1,  when  the  investigation  proceeded  at  Mon- 
treal, Toronto,  and  Quebec,  and  subsequently  completed,  but 
the  report  of  the  Board  is  not  yet  filed. 

*  Report  of  Proceedings  under  The  Combines  Investigation  Act 
for  the  year  ended  March  31,  191 1,  being  an  Appendix  to  Annual 
Report  of  the  Department  of  Labor,  1910-11. 


APPENDIX  II 
CONDITIONS  IN   ENGLAND 

The  law  in  England  regarding  combinations  to  maintain 
prices  is  in  a  peculiar  condition.  It  neither  approves  nor  con- 
demns. It  simply  declines  to  enforce  such  agreements.  In 
so  far  as  they  restrain  trade,  they  are  "unlawful,"  because 
monopolies  are  repugnant  to  English  law,  but  there  is  no 
provision  by  law  for  their  suppression. 

The  English  courts  are  committed  to  this  general  propo- 
sition : 

"Parties  engaged  in  trade  have  the  right  to  push  their 
trade  by  all  lawful  means,  and  to  endeavor  by  all  lawful  means 
to  keep  their  trade  in  their  own  hands  and  exclude  others  from 
participating  therein.  It  is  lawful  to  make  profitable  offers  to 
attract  customers  from  competitors,  and  they  may  induce  cus- 
tomers to  deal  with  them  exclusively,  by  giving  notice  that  to 
such  exclusive  customers  only  will  they  give  the  benefit  of 
their  more  favorable  terms." 

In  a  celebrated  case,  Mogul  Steamship  Company  vs.  Mc- 
Gregor, et  al.,  it  was  decided  that  certain  ship  owners  might 
combine  and  threaten  shippers,  that  if  they  patronized  the 
ships  of  a  competing  company  the  combination  would  refuse 
to  handle  their  freight.  This  was  held  to  be  the  meeting  of 
competition  by  competition. 

In  the  course  of  his  opinion,  Lord  Watson  said : 

'T  have  never  seen  any  reason  to  suppose  that  the  parties 
to  the  agreement  had  any  other  object  in  view  than  that  of 
defending  their  carrying  trade  during  the  tea  season  against 
the  encroachments  of  the  appellants  and  other  competitors 
and  of  attracting  to  themselves  custom  which  might  otherwise 
have  been  carried  off  by  these  competitors.  This  is  an  object 
which  is  strenuously  pursued  by  merchants,  great  and  small, 
in  every  branch  of  commerce,  and  it  is  in  the  eye  of  the  law 

363 


364  THE  NEW  COMPETITION 

perfectly  legitimate.  If  the  respondents'  combination  had  been 
formed,  not  with  a  single  view  to  the  extension  of  their  busi- 
ness and  the  increase  of  its  profits,  but  with  the  main  and  ulte- 
rior design  of  effecting  an  unlawful  object,  a  very  different 
question  would  have  arisen  for  the  consideration  of  your  lord- 
ships. But  no  such  case  is  presented  by  the  facts  disclosed  in 
this  appeal.  I  cannot  for  a  moment  suppose  that  it  is  the 
proper  function  of  English  courts  of  law  to  fix  the  lowest 
prices  at  which  traders  can  sell  or  hire  for  the  purpose  of  pro- 
tecting or  extending  their  business  without  committing  legal 
wrong  which  may  subject  them  in  damages.  Until  that  be- 
comes the  law  of  the  land,  it  is,  in  my  opinion,  idle  to  suggest 
that  the  legality  of  mercantile  competition  ought  to  be  gauged 
by  the  amount  of  the  consideration  for  which  a  competing 
trader  thinks  fit  to  part  with  his  goods  or  to  accept  employ- 
ment. The  withdrawal  of  agency  first  appeared  to  me  to  be  a 
matter  attended  with  difficulty,  but,  on  consideration,  I  am 
satisfied  that  it  cannot  be  regarded  as  an  illegal  act.  In  the 
first  place,  it  was  impossible  that  any  honest  man  could  im- 
partially discharge  his  duty  in  finding  freights  to  parties  who 
occupied  the  hostile  position  of  the  appellants  and  respondents ; 
and,  in  the  second  place,  the  respondents  gave  the  agents  the 
option  of  continuing  to  act  for  one  or  other  of  them,  in  cir- 
cumstances which  placed  the  appellants  at  no  disadvantage." 

Another  judge  said: 

"I  cannot  see  why  judges  should  be  considered  specially 
gifted  with  the  prescience  of  what  may  hamper  or  what  may 
increase  trade,  or  of  what  is  to  be  the  test  of  adequate  remu- 
neration. In  these  days  of  instant  communication  with  almost 
all  parts  of  the  world,  competition  is  the  life  of  trade,  and  I 
am  not  aware  of  any  stage  of  competition  called  'fair'  interme- 
diate between  lawful  and  unlawful.  The  question  of  'fairness' 
would  be  relegated  to  the  idiosyncrasies  of  individual  judges. 
I  can  see  no  limit  to  competition,  except  that  you  shall  not  in- 
vade the  rights  of  another." 

The  Lord  Chancellor  said  : 

"There  are  two  senses  in  which  the  word  'unlawful*  is  not 
uncommonly,  though,  I  think,  somewhat  inaccurately  used. 
There  are  some  contracts  to  which  the  law  will  not  give  effect ; 
and,  therefore,  although  the  parties  may  enter  into  what,  but 
for  the  element  which  the  law  condemns,  would  be  perfect 
contracts,  the  law  would  not  allow  them  to  operate  as  con- 
tracts, notwithstanding  that,  in  point  of  form,  the  parties  have 


CONDITIONS  IN   ENGLAND  3^s 

agreed.  Some  such  contracts  may  be  void  on  the  ground  of 
immorality;  some  on  the  ground  that  they  are  contrary  to 
public  policy;  as,  for  example,  in  restraint  of  trade,  and  con- 
tracts so  tainted  the  law  will  not  lend  its  aid  to  enforce.  It 
treats  them  as  if  they  had  not  been  made  at  all.  But  the  more 
accurate  use  of  the  word  'unlawful,'  which  would  bring  the 
contract  within  the  qualification  which  I  have  quoted  from  the 
judgment  of  the  Exchequer  Chamber,  namely,  as  contrary  to 
law,  is  not  applicable  to  such  contracts.  It  has  never  been 
held  that  a  contract  in  restraint  of  trade  is  contrary  to  law  in 
the  sense  I  have  indicated.^ 

The  legal  status  of  combinations  to  competition  is  summed 
up  as  follows: 

"The  non-recognition  of  associations  by  the  law  has  im- 
pressed on  them  a  character  of  great  fragility.  Whatever 
may  have  been  the  period  for  which  an  association  was  origi- 
nally formed,  no  member  need  belong  to  it  or  observe  its  rules 
a  day  longer  than  he  likes.  Nothing  can  keep  him  to  his  con- 
tract except  a  sense  of  honourable  obligation,  and  that  does 
not  always  resist  the  temptation  of  an  advantageous  order. 
This  fragility  is  increased  by  the  almost  invariable  incomplete- 
ness of  an  association  which  very  rarely  includes  all  the  com- 
petitors in  a  district.  Some  are  always  left  outside  to  profit 
by  cutting  prices  a  shade  below  the  association  rates,  or  it 
becomes  profitable  for  another  district  to  invade  the  territory 
of  the  combined  traders.  Disintegrating  forces  are  always  at 
work,  and  when  trade  is  bad,  and  there  is  a  mad  rush  for 
orders  at  any  price,  so  as  to  reduce  costs  by  a  large  output, 
they  work  with  double  violence  until  at  length  a  point  comes 
when,  by  common  consent,  the  association  is  allowed  to  lapse 
until  the  frenzy  has  ended  in  exhaustion.  The  history  of  price 
associations,  pools,  and  similar  bodies  will  show  how  they 
'rose,  and  stoop'd,  and  rose  again,  wild  and  disorderly/  "^ 

"Repressive  legislation  could  only  affect  the  outward  form 
of  combination.  Amalgamation  cannot  be  prohibited  without 
forbidding  the  union  of  even  two  firms,  while  to  make  mo- 
nopoly illegal  would  be  fruitless  where  no  formal  monopoly 
exists,  and  there  is  no  way  of  determining  the  greater  eflFective- 
ness  for  evil  of  a  merger  including  eighty  per  cent,  of  the 
trade  over  one  containing  only  fifty.     No  law  can  suppress 

'See  "The  Trust  Movement  in  British  Industry,"  by  H.  W.  Ma- 
crosty,  p.  19. 

"The  Trust  Movement  in  British  Industry,"  by  H.  W.  Macrosty, 

pp.   22-2Z. 


366  THE  NEW  COMPETITION 

the  Gentlemen's  Agreement,  where  there  are  no  rules,  no  con- 
stitution, no  contract,  but  common  action  is  effected  verbally 
and  informally,  and  yet  some  of  the  most  oppressive  combina- 
tions have  been  of  that  form.  Neither  combination  nor  agita- 
tion should  be  driven  underground,  and  it  is  significant  that 
to-day  complaints  are  generally  raised  in  the  United  King- 
dom, not  against  the  legally  recognized  amalgamations,  but 
against  associations  which  have  no  existence  in  the  eyes  of 
the  law,  and  work  in  secret.  To  strike  at  the  methods  adopted 
by  combinations  is  not  easy  without  at  the  same  time  repress- 
ing measures  blamelessly  adopted  by  the  individual  trader. 
Boycotting,  dumping,  selling  at  a  loss  to  crush  competition, 
maintaining  prices  at  the  highest  level  which  the  market  per- 
mits— these  are  no  monopoly  of  combinations,  but  are  weapons 
in  everyday  use  by  manufacturers,  merchants,  and  shop- 
keepers. It  would  be,  indeed,  an  extraordinary  thing  to  strike 
at  competition  in  the  name  of  competition."  ^ 

"The  effects  of  trusts  and  cartels  in  England  have  not 
been  so  marked  as  to  provoke  popular  opposition,  and,  in  conse- 
quence, they  have  aroused  little  political  discussion.  In  1908 
Sir  G.  Parker  asked  in  Parliament  whether  a  committee  of 
inquiry  was  not  desirable,  and  was  informed  by  the  Prime 
Minister  that  he  was  aware  of  the  existence  of  such  combina- 
tions, and  that  in  some  cases  their  effect  might  be  prejudicial 
to  the  public,  but  that  he  was  not  at  present  prepared  to  grant 
an  inquiry."  * 

"It  is  safe  to  assume  that  British  ^trusts'  keep  prices  on 
the  whole  somewhat  above  what  they  would  be  under  free 
competition,  but,  before  attributing  this  to  them  as  blame,  we 
must  be  sure  that  competition  prices  are  healthy  prices,  an 
assumption  which  cannot  be  made.  Close  investigation  be- 
tween prices  and  costs  before  and  after  amalgamation  would 
be  necessary  to  determine  this  question,  and,  needless  to  say, 
the  information  is  not  at  our  disposal.  Speaking  broadly, 
there  have  been  very  few  complaints  of  price  extortion  on  the 
part  of  our  great  amalgamations,  and  where  made  they  have 
generally  been  supported  only  by  the  scantiest  of  evidence. 
When  the  Bradford  merchants  were  at  odds  with  the  Brad- 
ford Dyers'  Association  they  nevertheless  admitted  that  the 
price  policy  of  the  great  combine  had  been  moderate."  ^ 

*"The  Trust  Movement  in  British  Industry/*  by  H.  W.  Macrosty, 

pp.  344-345. 

""Monopoly  and  Competition,"  by  Hermann  Levy,  p.  315. 

""The  Trust  Movement  in  British  Industry,"  by  H.  W.  Mscrottj, 
p.  335- 


CONDITIONS  IN  ENGLAND  367 

"In  1833  ^  parliamentary  committee  inquired  into  the  state 
of  manufacturers,  commerce  and  shipping,  and  the  extensive 
evidence  taken  showed  that  in  the  manufacturing-  of  finished 
goods — which  alone  were,  in  fact,  considered — a  vigorous  com- 
petitive struggle  was  going  on.  This  had  produced  in  the 
bad  years  which  preceded  1820  such  a  lowering  of  prices  that 
the  profits  of  most  undertakings  were  exceptionally  small,  and 
in  some  cases  no  longer  covered  the  cost  of  production.  The 
opinions  of  the  experts  heard  by  the  committee  were  charac- 
teristically expressed  by  a  textile  worker:  'We  have  long 
considered  that  part  of  our  grievances  was  caused  by  the 
steam  looms  and  by  the  competition  of  foreign  manufacturers ; 
but  we  consider  that  a  very  trifling  matter  in  comparison  with 
the  home  competition  that  exists  among  our  masters,  and  till 
there  is  some  remedy  for  that  we  shall  never  be  better.'  Em- 
ployers and  workers  seemed  equally  convinced  of  the  oppres- 
sive results  of  competition;  but  there  is  no  trace  throughout 
the  evidence  of  any  united  action  to  restrict  or  abolish  it. 
Rather,  in  all  branches  of  industry,  competition  was  regarded 
as  an  evil,  as  inevitable  as  it  was  harmful,  and  the  survivors 
regarded  it  as  little  more  than  a  natural  consequence  of  the 
struggle  for  existence  that  the  weaker  gradually  became  en- 
tirely submerged.  Adam  Smith  had  taken  the  ruin  of  such 
men  as  a  completely  natural  fact,  unimportant  compared  with 
all  the  advantages  of  the  competition  he  championed.  He  had 
in  mind  the  condition  of  affairs  which  an  expert  stated  in 
1833  to  be  prevalent  in  England,  when  he  said:  *I  should 
ascribe  to  increased  competition  the  misfortunes  of  many  people 
in  England.  If  too  many  people  run  into  one  line  of  busi- 
ness, of  course  the  weaker  portion  must  give  way.' "  ^ 

*  "Monopoly  and  Competition,"  by  Hermann  Levy,  pp.  103-104. 


APPENDIX  III 
CONDITIONS  IN   GERMANY 

Trade  combinations  in  Germany  are  not  organized  under 
special,  but  are  formed  and  operated  under  general  laws.  It 
is  the  policy  of  the  Government  to  encourage  syndicates  and 
what  are  known  as  "cartels,"  which  are  neither  more  nor  less 
than  hard  and  fast  agreements  to  restrict  outputs  and  main- 
tain prices. 

The  Prussian  State  is  a  member  of  the  potash  syndicate, 
because  it  is  a  large  miner  of  potash,  and  the  draft  of  the 
potash  law  originally  provided  that  all  the  German  potash 
mines  should  be  compelled  to  join  the  syndicate,  but  that  com- 
pulsory feature  was  not  embodied  in  the  imperial  act  as  finally 
passed.^ 

The  several  trade  syndicates  may  be  defined  as  follows : 

''The  Selling  Agreement"  cartel,  or  combination  under 
which  producers  agree  not  to  sell  their  products  below  a  speci- 
fied minimum  price,  which  price  is  changed  from  time  to  time 
in  accordance  with  the  varying  cost  of  production  and  general 
requirements  of  market. 

"These  rather  loosely  organized  combinations  were  the 
original  type  of  German  trade  syndicates,  and  served  their 
purpose  very  well  in  prosperous  times,  but 'in  periods  of  de- 
pression and  diminished  demand  it  was  found  difficult  to  hold 
certain  members  to  the  agreement,  and  it  was  decided  to  adopt 
a  more  binding  form  of  organization,  and  put  the  business  of 
selling  under  direct  control  of  a  central  authority." 

*See  "Legal  Status  of  Trusts  in  Germany,"  Consular  Trade  Re- 
ports, January  25,  191 1,  pp.  305-312. 

A  German  authority  says :  "Kartell  and  Trust  are  very  different, 
not  in  degree,  but  in  their  nature.  I  know  of  no  case  in  the  thirty 
years  of  active  kartell  movement  in  Europe  in  which  the  one  form 
has  passed  over  into  the  other." 

368 


CONDITIONS  IN  GERMANY  369 

Sales  Syndicates,  in  which  all  members  to  the  "carter' 
pool  their  products,  to  be  sold  through  a  central  committee 
which  fixes  the  selling  price  and  apportions  among  the  mem- 
bers orders  as  they  are  received  in  proportion  to  the  capacity 
of  each. 

"In  a  syndicate  of  this  class  the  individual  firms  and  com- 
panies which  it  includes  retain  their  corporate  autonomy,  pay 
dividends  on  their  own  stock  according  to  earnings,  and  unless 
otherwise  agreed  in  the  cartel,  purchase  independently  the 
raw  materials  of  manufacture." 

A  third  class  includes  the  trusts,  or  closely  organized  syn- 
dicates, which  purchase  original  corporations  and  issue  new 
stock,  consolidating  the  management  under  the  control  of  the 
central  organization.^ 

"The  majority  of  German  business  men  and  economists 
are  not  opposed  to  such  syndicates  and  the  creation  of  monop- 
olies, in  which  the  State  itself  sometimes  participates  in  com- 
bination with  private  producers,  is  lawful  if  the  creators  com- 
mit no  injurious  act,  a  limitation  so  difficult  to  define  and 
comprehend  that  practically  the  only  difficulties  with  which 
the  ordinary  cartels  come  into  contact  are  difficulties  arising 
between  the  members  themselves.  The  courts  have  frequently 
recognized  the  perfect  right  of  producers  to  control  their 
product  in  a  monopolistic  organization  as  a  right  somewhat 
akin  to  the  right  to  make  use  of  a  highway,  and  only  subject 
to  correction  of  abuses  of  power. 

"The  profound  difference  between  the  German  and  the 
American  conception  of  sound  business  conditions  is  best  ex- 
plained, perhaps,  by  the  racial  difference  between  the  two 
peoples — the  German,  with  strong  collectivist  tendencies 
which  manifest  themselves  in  society,  in  government,  and  in 
trade,  and  the  American,  with  a  deeply  rooted  individualism, 
which  remains  even  when  he  engages  in  a  collectivist  enter- 
prise. Thus  it  happens  that  the  capitalistic  classes  of  Ger- 
many, although  opposing  socialism  in  their  public  life,  never- 
theless drift  in  the  direction  indicated  by  their  natural  ten- 
dencies in  their  business  life,  and,  in  so  doing,  they  have  the 
tacit  approval  of  the  avowed  socialistic  classes,  who  perceive 
in  the  steady  accumulation  of  the  producing  powers  in  a  few 
hands  a  movement  tending  logically  and  inevitably  toward  the 

*Sec  Daily  Consular  and  Trade  Reports,  Januar>'  25,  191 1,  p.  jod 


370  THE  NEW  COMPETITION 

eventual  realization  of  their  dogma — that  is,  the  State  in 
supreme  control."  ^ 

"The  German  courts  have  repeatedly  ruled,  according  to 
Richard  Calwer,  the  socialistic  writer,  in  his  'Kartelle  und 
Trusts,'  that  the  syndicates  do  not  violate  the  principles  of 
trade  liberty,  as  they  tend  to  protect  the  interests  of  the  whole 
nation  against  the  selfishness  of  individuals,  and  to  protect  the 
products  of  industry  from  the  many  disadvantages  which  arise 
from  price  cutting. 

"Under  these  rulings,  absolute  or  partial  monopolization  by 
many  cartels  has  been  brought  about,  the  national  output  be- 
ing reduced,  with  a  consequent  lifting  of  prices  to  a  remunera- 
tive level.  The  danger  point  would  be  reached,  from  the  point 
of  view  of  the  law,  should  a  cartel  of  this  character,  on  the 
possible  refusal  of  one  outside  producer  to  accept  its  terms, 
undertake  by  unfair  means  to  drive  him  into  its  fold  or  crush' 
him  if  he  refused  its  terms,  and  the  difficulty  of  the  prosecu- 
tion would  be  to  prove  that  any  such  result  had  been  contem- 
plated, even  though  its  effect  had  been  attained. 

"The  very  forms  of  commercial  organization  most  common 
in  Germany  and  America  correspond  to  the  temperamental 
qualities  of  the  two  peoples.  In  Germany  the  commercial 
trust,  or  cartel,  is  usually  a  federation  in  which  each  member 
retains  its  commercial  identity  while  abandoning  its  freedom 
of  action  to  the  federation  for  a  contractual  period  of  three  or 
five  or  ten  years,  or  perhaps  longer,  but  expecting  eventually 
to  get  it  back,  and  then,  perhaps,  make  another  contract,  if  the 
results  of  the  first  have  been  satisfactory.  A  German  cartel  is, 
as  a  rule,  open  to  all  those  who  submit  to  its  provisions,  and 
the  control  of  the  members  is  confined  to  the  limits  traced  in 
the  federal  pact.  In  the  typical  American  trust,  instead  of  this 
association  of  units  with  influence  usually  rated  according  to 
productive  capacity,  we  observe  generally  the  permanent  own- 
ership of  a  large  part  of  the  enterprise  by  a  small  group  of 
persons,  in  which  there  is  ordinarily  some  dominating  personal 
element. 

"The  basic  notion  of  the  German  organizer  has  been  to 
control  production  definitel}-,  leaving  it  to  the  resourcefulness 
of  the  individual  producers  in  the  cartel  to  make  more  or  less 
profit  out  of  the  proportion  of  the  production  allotted  to  them ; 
the  basic  notion  of  the  American  organizer  has  been,  usually, 
to  create  a  perfected  and  consolidated  instrument,  success  fol- 
lowing naturally  as  a  result  of  its  well-balanced  and  skill- 

*  "Legal  Operation  of  Trusts  in  Germany,"  Daily  Consular  and 
Trade  Reports^  September  15,  191 1,  pp.  1217-1218. 


CONDITIONS  IN  GERMANY  371 

fully  organized  proportions.  German  cartel  organization  has 
contemplated  that  all  its  constituent  firms  should  remain  in 
business;  American  commercial  centralization  usually  has 
meant  that  the  weaker,  or  for  any  reason  undesirable,  elements 
should  go  out  of  business,  suggesting  that  the  strong  native 
individualism  of  our  people  rises  to  the  surface,  even  when  an 
effort  tending  toward  pure  collectivism  is  attempted."  ^ 

A  high  German  Court,  after  reviewing  authorities  in 
France,  Russia,  and  the  United  States,  made  the  following 
comments : 

"If,  in  any  branch  of  the  business,  the  prices  so  decline 
that  a  profitable  trade  is  made  impossible  thereby,  or  that  the 
trade  is  seriously  endangered,  the  crisis  at  the  start  is  not  only 
injurious  to  the  individual  person,  but  also  from  a  national 
economic  point  of  view,  and  it  lies,  therefore,  in  the  interest 
of  the  whole  that  the  inadequately  low  prices  in  a  certain 
branch  of  business  should  not  permanently  exist.  Therefore, 
formerly,  and  at  the  present  time,  legislators  have  aimed  to 
increase  prices  of  certain  products  by  inaugurating  protective 
tariffs. 

"It  cannot,  therefore,  be  looked  upon  as  generally  contrary 
to  the  interests  of  the  whole,  if  manufacturers  of  a  certain 
article  form  a  cartel  in  order  to  prevent  or  to  modify  the  mu- 
tual underbidding  and  the  decline  of  prices  for  their  products 
caused  thereby;  on  the  contrary,  if  the  prices  are  continually 
so  low  that  the  manufacturers  are  threatened  with  financial 
ruin,  their  forming  a  cartel  is  not  only  to  be  looked  upon  as 
a  justified  manifestation  of  self-preservation,  but  also  as  an 
act  which  lies  in  the  interest  of  the  whole. 

"The  formation  of  the  syndicates  and  cartels  in  question, 
therefore,  has  been  designated  in  various  quarters  as  a  means 
which,  if  reasonably  applied  to  national  economics,  is  especially 
adapted  to  prevent  uneconomic  overproduction,  yielding  no 
profit  and  resulting  in  catastrophes."  ^ 

"The  Imperial  German  Government  issued  statistics  in 
1905,  showing  that  there  were  385  cartels  existing  at  that  time 
in  Germany,  but  these  figures  are  said  not  to  contain  the 
Konditionskartelle  (those,  e.  g.,  fixing  terms  of  sale  other 
than  prices)  and  numerous  other  confederations,  the  existence 
of  which  was  not  then  within  the  knowledge  of  the  authorities. 

""Legal  Operation  of  Trusts  in  Germany,"  Daily  Consular  and 
Trade  Reports,  September  15,  191 1,  pp.  1218-1219. 

^  Daily  Consular  and  Trade  Reports,  September  15,  191 1,  p.  1219. 


372  THE  NEW  COMPETITION 

When  these  statistics  were  made  up,  it  was  understood  that 
about  12,000  establishments  were  members  of  syndicates.  The 
following  recapitulation  shows  the  variety  of  industries  cov- 
ered by  commercial  combinations  in  1905 : 

Coal  mining  19  Textiles    31 

Stones  and  earth 27  Paper  industry 6 

Brick  industry  132  Leather  trade   6 

Earthenware  industry  .  4  Wood  industry 15 

Glass  industry 10  Food  products  7 

Iron  industry 62  Miscellaneous    7 

Metal  trade  11                                                 

Machinery,   electricity.  .  2  Total 385"  ^ 

Chemical  industries  ...  46 

Germany  has  a  statute  ^  prohibiting  unfair  competition.  It 
provides  that  whoever  is  guilty  in  industrial  deals  of  trans- 
actions which  offend  against  good  morals,  may  be  held  liable 
in  damages.  The  courts  have  so  interpreted  the  law  that  it 
not  only  covers  unfair  actions,  but  if  a  party  refrains  from 
doing  something  he  ought  to  do,  he  is  liable. 

The  German  Courts  go  much  further  than  the  courts  of 
this  country  in  carefully  weighing  transactions  to  determine 
whether  or  not  they  are  contrary  to  good  morals  and  fair  play, 
and  in  enforcing  the  laws  against  practices  and  actions  which 
are  not  looked  upon  as  decent  and  reputable.  Individuals  are 
protected  against  oppression  by  parties  who  are  greedy  for 
gain.  Damages  are  awarded  where  things  are  done  to  influ- 
ence a  man's  business  prospects  or  his  connections  with  his 
customers.  If  a  man,  in  the  exercise  of  a  technical  legal  right, 
damages  a  third  person,  he  may  find  himself  liable  under  the 
very  broad  statute.  Prevailing  standards  of  good  morals  and 
commercial  ethics  are  taken  into  consideration.  In  mercantile 
affairs  the  views  of  customers  and  of  honorable  merchants  in 
their  commercial  intercourse  are  used  to  measure  the  guilt 
or  innocence  of  specific  acts. 

A  member  of  a  combination  wrote  a  certain  customer  that 
unless  such  customer  refrained  from  making  purchases  from 

^  Daily  Consular  and  Trade  Reports  September  15,  191 1,  p.  1222. 
'A  translation  of  this  statute  is  on  file  at  Wa^ington  in  the  Bu- 
reau of  Manufactures. 


CONDITIONS  IN  GERMANY  373 

firms  outside  of  the  combination,  the  combination  would  refuse 
to  sell  him  goods.  An  outsider  caused  the  arrest  of  the  mem- 
ber, and  he  was  convicted.  The  court  held  the  combination 
legal,  but  it  also  held  that  in  threatening  a  customer  unless  he 
ceased  dealing  with  parties  outside  the  combination,  the  threat 
amounted  to  oppression.  The  spirit  of  this  decision  is  directly 
opposed  to  that  of  the  Mogul  Steamship  case,  referred  to  on 
page  349. 

"The  German  Civil  Code,  paragraph  138,  says  that  a  trans- 
action which  offends  against  good  morals  is  void.  The  form- 
ing of  a  cartel,  or  syndicate,  is  not  held  to  come  under  this 
paragraph,  but,  when  formed,  it  may  bring  itself  under  the 
operation  of  this  provision  by  the  means  which  it  may  choose 
to  attain  its  purposes,  such  as,  for  instance,  boycotting,  the 
cutting  of  prices  with  competitors  to  such  an  extent  as  to 
bring  about  the  financial  ruin  of  the  latter,  misuse  of  their 
monopoly  and  franchises,  and  the  like.  Concerning  boycot- 
ting, there  are  decisions  of  the  Imperial  Supreme  Court  in 
the  years  1903  and  1906  on  this  point. 

"The  German  Civil  Code  contains  certain  paragraphs 
touching  'treu  und  glauben,'  or  truth  and  good  faith,  and 
perhaps  these  paragraphs  may  be  designated  as  containing 
equitable  principles  in  contradistinction  to  the  more  fixed  legal 
rules,  there  being  in  Germany  no  system  of  equity  law  and 
jio  equity  courts.  The  Supreme  Court  at  Leipzig  decided 
in  the  year  1904  that  a  stricter  moral  standard  must  be  applied 
to  cartels  and  syndicates ;  that  is,  that  they  must  be  held  to  a 
stricter  accounting  for  the  moral  quality  of  their  acts,  because 
of  the  preponderance  of  economic  interest  which  they  repre- 
sent." 1 

{  The  German  law  to  remedy  the  abuses  of  unfair  com- 
petition came  into  force  October  ist,  1909.  The  law  con- 
tains both  a  general  principle  which  supplies  a  weapon  against 
unfair  practices  generally  and  an  enumeration  of  a  number 
of  unfair  practices  specifically .^ 

^  Daily  Consular  and  Trade  Reports.    January  25,  1911,  p.  310. 

2  The  summary  of  this  law  is  taken  from  an  admirable  report 
made  by  Sir  Francis  Oppenheimer,  England's  Commercial  Attache 
for  Germany;  the  report  was  presented  in  January,  1913,  and  is  printed 
in  Diplomatic  and  Consular  Reports,  No.  683,  Miscellaneous  Series. 


374  THE  NEW  COMPETITION 

This  is  in  line  with  advanced  thought,  and  in  accord 
with  the  principles  of  the  New  Competition. 

The  law  is  a  step  in  advance  of  older  laws  in  that  it  ex- 
tends to  the  employer,  under  certain  circumstances,  the  liabil- 
ity for  unfair  practices  by  his  employee. 

Furthermore,  the  law  has  increased  the  maximum  fines; 
it  has  added  the  possible  punishment  of  imprisonment  andl 
payment  of  compensations  to  a  maximum  of  10,000  marks. 

Remedies  are  by  way  of  civil  as  well  as  criminal  procedure. 
The  civil  remedies  are  actions  for  damages  and  for  injunction. 

Criminal  actions  may  be  instituted  either  officially  or 
privately. 

Foreigners  doing  business  within  the  German  Empire  are. 
entitled  to  the  benefits  of  this  law  only  in  so  far  as  the  laws  off' 
their  own  country  give  German  merchants  similar  protection 
against  unfair  competition. 

One  of  the  most  notorious  cases  of  foreigners  using  the  law 
of  unfair  competition  for  the  protection  of  their  business  inter- 
ests is  connected  with  the  famous  Pilsen  brewery.  The  origi- 
nal Pilsen  brewery  is  an  Austro-Hungarian  firm.  It  has,  under 
paragraph  16,  succeeded  before  the  German  courts  in  a  claim 
to  the  exclusive  right  to  use  the  word  'Tilsen  for  the  beer 
brewed  at  its  own  brewery.  Where  the  name  "Pilsen"  is  to 
be  used  as  a  trade  designation  of  a  beer  lightly  brewed  and  in 
taste  like  the  original  "Pilsen,"  but  brewed  outside  the  original 
Pilsen  brewery,  the  word  "Pilsen"  must  be  accompanied  by 
some  visible  word  or  words  clearly  indicating  the  "non- Pilsen" 
origin  of  the  beer. 

In  some  cases  the  law  treats  acts  committed  abroad  as 
offences  committed  within  the  German  jurisdiction,  e.  g.,  let- 
ters containing  offences  against  the  law  posted  abroad,  buti 
received  in  Germany,  or  advertisements  inserted  in  the  foreign 
Press  circulating  in  Germany. 

The  following  is  a  schedule  of  paragraphs  against  unfair] 
competition. 

I.  General  clause;  acts  in  course  of  business  committed 
contra  bonos  mores. 


CONDITIONS  IN  GERMANY  375 

2.  What  applies  to  "goods"  applies  also  to  agricultural 
produce,  etc. 

3.  Action  for  injunction  against  unfair  advertisements. 

4.  Penalty  and  (or)  imprisonment  for  intentionally  decep- 
tive advertising. 

5.  Exception  in  case  of  "traditional"  designations. 

6.  Sale  of  bankrupt's  assets,  if  no  longer  part  of  bank- 
rupt's estate,  must  contain  no  reference  to  the  fact  of  bank- 
ruptcy. 

7.  (a)  Advertisements  of  sale  must  announce  reason  of 
sale. 

(b)  Regulations  concerning  sales  to  be  issued  by  supe- 
rior administrative  bodies. 

8.  Penalty  and  (or)  imprisonment  in  case  of  restocking 
for  the  purpose  of  a  sale. 

9.  (a)  Selling  off  is  to  be  regarded  as  a  sale  for  the  pur- 
poses of  this  law. 

(b)  Except  in  case  of  customary  season  sales,  to  be 
fixed  by  the  superior  administrative  authorities. 

10.  Penalties  or  imprisonment  for  infringement  of  para- 
graphs 7  and  9. 

11.  Regulations  for  the  retail  sale  of  certain  commodi- 
ties to  be  fixed  by  the  Federal  Council. 

12.  (a)  Penalty  and  (or)  imprisonment  in  the  case  of 
wrongfully  bribing  employees  for  the  purposes  of  competition. 

(b)  The  same  penalty  and  (or)  imprisonment  to  be 
inflicted  upan  employee  accepting  bribes. 

13.  (a)  Persons  entitled  to  bring  action  for  injunction 
(under  paragraphs  i  and  3;  also  under  paragraphs  6,  8,  10 
and  12). 

(b)  Liability  to  pay  damages  (sub-paragraph  3;  also 
sub-paragraphs  6,  8,  11  and  12). 

(c)  Liability  of  employer  for  acts  of  employee  com- 
mitted (under  paragraphs  6,  8,  10,  11  and  12). 

14.  (a)  Statements  capable  of  injuring  business  of  a 
competitor,  if  not  substantiated,  give  rise  to  actions  for  dam- 
ages and  injunctions. 


376  THE  NEW  COMPETITION 

(b)  Confidential  information  supplied  for  reasons  of 
a  justifiable  interest  gives  rise  to  an  action  for  injunction  only 
if  untrue,  and  to  an  action  for  damages  if  the  information  is 
known  to  be  incorrect  by  the  person  supplying  it. 

15.  (a)  Penalty  and  (or)  imprisonment  in  case  of  false 
information  concerning  another's  business  given  mala  fide. 

(b)  Employer  liable  for  such  information  given  on 
the  part  of  employee  if  made  with  employer's  knowledge. 

16.  (a)  Action  for  injunction  against  a  person  using 
another's  name,  etc.,  whereby  a  wrong  impression  might  arise. 

(b)  Action  for  damages  if  person  using  such  name 
ought  to  have  known  that  a  wrong  impression  might  arise. 

(c)  These  remedies  are  granted  also  if  certain  other 
business  contrivances  are  used. 

17.  (a)  Penalty  and  (or)  imprisonment  for  employe 
betraying  business  secret. 

(b)  Same  consequences  fall  upon  persons  having 
(sub-paragraph  17  [a] )  acquired  knowledge  of  a  secret  to  use 
it  for  purposes  of  competition. 

18.  Liability  to  penalty  and  (or)  imprisonment  if  the  per- 
son who  is  confidentially  entrusted  in  course  of  business  with 
a  person's  models  utilizes  them  for  purposes  of  competition, 
or  communicates  them  to  others. 

The  general  principle  of  the  law  is  stated  in  the  first  para- 
graph which  is  as  follows : 

"Whosoever  commits  in  commercial  intercourse  for  the 
purposes  of  competition  acts  which  are  contrary  to  'good  faith' 
can  be  brought  before  the  courts,  for  the  purposes  of  an 
injunction  and  the  payment  of  damages." 

It  has  been  held  that  "acts"  are  deemed  to  be  contrary  to 
"good  faith"  if  they  are  contrary  to  the  sense  of  decency 
of  the  fair  and  just-minded  among  the  class  concerned;  an 
act  to  fall  within  the  operation  of  this  general  paragraph 
must  have  been  committed  in  commercial  intercourse,  which 
is  intended  to  embrace  all  acts  which  are  undertaken  for  the 
purposes  of  "business";  the  act  must  have  been  undertaken 


CONDITIONS  IN  GERMANY  377 

with  a  view  to  competition.  The  value  of  this  general  clause 
is  often  questioned,  chiefly  because  the  judges  are  said  to  be 
inexperienced  in  commercial  practices  and  have  shown,  as 
a  rule,  little  ability  in  putting  such  general  principles  to 
practical  use.  The  very  fact  that  a  later  part  of  the  law 
enumerates  specific  abuses  increased  at  first  the  hesitation 
of  the  bench;  it  concentrates  its  attention  upon  these  specific 
provisions,  which,  it  argues,  would  be  superfluous  if  the  gen- 
eral clause  were  really  intended  for  general  application.  But 
for  the  purpose  of  litigation  the  general  clause  is  the  most 
important  provision  of  the  law.  Probably  99  per  cent,  of  all 
actions  against  unfair  competition  are  based  upon  it,  solely, 
or  jointly  with  other  paragraphs.  Its  wording  applying  to  all 
"acts  contrary  to  good  faith"  is  exceptionally  elastic ;  it  has  in 
practice  received  a  very  wide  interpretation  by  the  higher 
courts,  more  especially  the  Reichsgericht,  which  is  the  Court 
of  final  instance.  In  consequence,  this  paragraph  is  now 
introduced  into  all  pleadings,  even  if  the  action  relies  upon 
one  of  the  other  and  more  definite  paragraphs.  As  a  result 
of  the  decisions  given  by  the  Reichsgericht  the  lower  courts 
are  becoming  more  thoroughly  imbued  with  the  spirit  of 
paragraph  i. 

The  criminal  features  of  the  law  are  not  frequently 
resorted  to,  and  cases  of  imprisonment  are  exceedingly  rare. 
The  penalties  imposed  are  generally  lov/. 

Regarding  the  practical  benefits  of  the  law  there  is,  natur- 
ally, a  diversity  of  opinion,  but  that  the  law  has  a  very  pro- 
nounced eflFect  in  deterring  unfair  competitive  practice  there 
can  be  no  doubt. 


APPENDIX  IV 

CLAYTON  LAW 

An  Act  To  supplement  existing  laws  against  unlawful  restraints 
and  monopolies,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  Assembled,  That 
"antitrust  laws,"  as  used  herein,  includes  the  Act  entitled  "An 
Act  to  protect  trade  and  commerce  against  unlawful  restraints 
and  monopolies,"  approved  July  second,  eighteen  hundred  and 
ninety;  sections  seventy-three  to  seventy-seven,  inclusive,  of 
an  Act  entitled  "An  Act  to  reduce  taxation,  to  provide  revenue 
for  the  Government,  and  for  other  purposes,"  of  August 
twenty-seventh,  eighteen  hundred  and  ninety-four;  an  Act 
entitled  "An  Act  to  amend  sections  seventy-three  and  seventy- 
six  of  the  Act  of  August  twenty-seventh,  eighteen  hundred  and 
ninety-four,  entitled  'An  Act  to  reduce  taxation,  to  provide 
revenue  for  the  Government,  and  for  other  purposes,' " 
approved  February  twelfth,  nineteen  hundred  and  thirteen; 
and  also  this  Act. 

"Commerce,"  as  used  herein,  means  trade  or  commerce 
among-  the  several  States  and  with  foreign  nations,  or  between 
the  District  of  Columbia  or  any  Territory  of  the  United  States 
and  any  State,  Territory,  or  foreign  nation,  or  between  any 
insular  possessions  or  other  places  under  the  jurisdiction  of  the 
United  States,  or  between  any  such  possession  or  place  and 
any  State  or  Territory  of  the  United  States  or  the  District  of 
Columbia  or  any  foreign  nation,  or  within  the  District  of 
Columbia  or  any  Territory  or  any  insular  possession  or  other 
place  under  the  jurisdiction  of  the  United  States:  Provided, 
That  nothing  in  this  Act  contained  shall  apply  to  the  Philip- 
pine Islands. 

The  word  "person"  or  "persons"  wherever  used  in  this 
Act  shall  be  deemed  to  include  corporations  and  associations 
existing  under  or  authorized  by  the  laws  of  either  the  United 
States,  the  laws  of  any  of  the  Territories,  the  laws  of  any 
State,  or  the  laws  of  any  foreign  country. 

378 


CLAYTON  LAW  379 

Sec.  2.  That  it  shall  be  unlawful  for  any  person  engaged 
in  commerce,  in  the  course  of  such  commerce,  either  directly 
or  indirectly  to  discriminate  in  price  between  different  pur- 
chasers of  commodities,  which  commodities  are  sold  for  use, 
consumption,  or  resale  within  the  United  States  or  any  Terri- 
tory thereof  or  the  District  of  Columbia  or  any  insular  posses- 
sion or  other  place  under  the  jurisdiction  of  the  United  States, 
where  the  effect  of  such  discrimination  may  be  to  substantially 
lessen  competition  or  tend  to  create  a  monopoly  in  any  line  of 
commerce :  Provided,  That  nothing  herein  contained  shall  pre- 
vent discrimination  in  price  between  purchasers  of  commodi- 
ties on  account  of  differences  in  the  grade,  quality,  or  quan- 
tity of  the  commodity  sold,  or  that  makes  only  due  allowance 
for  difference  in  the  cost  of  selling  or  transportation,  or  dis- 
crimination in  price  in  the  same  or  different  communities  made 
in  good  faith  to  meet  competition:  And  provided  further,  That 
nothing  herein  contained  shall  prevent  persons  engaged  in  sell- 
ing goods,  wares,  or  merchandise  in  commerce  from  selecting 
their  own  customers  in  bona  fide  transactions  and  not  in 
restraint  of  trade. 


This  section,  to  the  word,  Provided,  is  in  line  with  laws  more 
or  less  similar  in  nineteen  states,  and  standing  by  itself  would 
be  quite  drastic  in  application. 

The  section  contains,  however,  the  following  important  pro- 
visions : 

(a)  Nothing  contained  therein  shall  prevent  discrimina- 
tion in  price  between  purchasers  on  account  of  differences  in 
grade,  quality  or  quantity. 

(b)  Or  that  maker^  only  due  allowance  for  difference  in  the 
cost  of  selling,  or  transportation. 

(c)  Or  discriminations  in  price  in  the  same  or  different 
communities  made  in  good  faith  to  meet  competition, 

(d)  Provided  further  that  nothing  therein  contained  shall 
prevent  persons,  partnerships  or  corporations  from  selecting 
their  own  ctistomers  in  bona  fide  transactions  and  not  in 
restraint  of  trade. 

These  provisions  practically  nullify  the  attempt  to  make 
discriminations  in  price  illegal,  inasmuch  as  it  will  be  very  easy 
for  any  party  who  wishes  to  discriminate  in  price  to  do  so  on 
the  ground  of  grade,  quality  or  quantity,  or  for  some  other 


38o  THE  NEW  COMPETITION 

reason  contained  in  those  express  provisions,  and  it  is  to  be 
feared  that  the  law  will  not  reach  the  unfair  practices  it  seeks 
to  condemn. 

The  state  laws  call  for  fines  and  imprisonment  and  do 
not  contain  all  of  these  exceptions;  they  are,  therefore,  more 
drastic. 

While  these  exceptions  may  provide  a  door  of  escape  for 
any  party  charged  with  illegal  discrimination  in  prices,  it  is  the 
firm  opinion  of  the  writer  that  it  is  to  the  interest  of  both  sellers 
and  buyers,  and  to  the  interest  of  the  public,  that  this  section  be 
lived  up  to  in  letter  and  in  spirit. 

Unfair  discrimination  is  not  made  a  criminal  offense.  The 
enforcement  of  this  section  is  left  to  the  Trade  Commission 
(see  section  ii),  but  in  section  4  remedy  is  given  any  person 
who  may  be  damaged  in  his  business  by  anything  forbidden  in 
the  anti-trust  laws. 

Sec.  3.  That  it  shall  be  unlawful  for  any  person  engaged 
in  commerce,  in  the  course  of  such  commerce,  to  lease  or  make 
a  sale  or  contract  for  sale  of  goods,  wares,  merchandise, 
machinery,  supplies  or  other  commodities,  whether  patented 
or  unpatented,  for  use,  consumption  or  resale  within  the 
United  States  or  any  Territory  thereof  or  the  District  of 
Columbia  or  any  insular  possession  or  other  place  under  the 
jurisdiction  of  the  United  States,  or  fix  a  price  charged  there- 
for, or  discount  from,  or  rebate  upon,  such  price,  on  the  con- 
dition, agreement  or  understanding  that  the  lessee  or  pur- 
chaser thereof  shall  not  use  or  deal  in  the  goods,  wares, 
merchandise,  machinery,  supplies  or  other  commodities  of  a 
competitor  or  competitors  of  the  lessor  or  seller,  where  the 
effect  of  such  lease,  sale,  or  contract  for  sale  or  such  condi- 
tion, agreement  or  understanding  may  be  to  substantially  lessen 
competition  or  tend  to  create  a  monopoly  in  any  line  of 
commerce. 

The  enforcement  of  this  section  is  also  committed  to  the 
Trade  Commission  (see  section  11),  but  section  4  which  fol- 
lows gives  a  remedy  to  any  person  who  may  be  damaged.  The 
acts  described  in  this  section  3  are  not  made  criminal  offenses. 

This  section  does  not  forbid  the  exclusive  contracts  therein 
described  where  the  effect  does  not  substantially  lessen  compe- 


CLAYTON  LAW  381 

tition,  or  does  not  tend  to  create  a  monopoly,  but  whether  such 
acts  do  lessen  competition  or  tend  to  create  a  monopoly  would 
be  a  question  of  fact,  hence  the  business  world  will  be  exceed- 
ingly cautious  in  making  such  contracts. 

Sec.  4.  That  any  person  who  shall  be  injured  in  his 
business  or  property  by  reason  of  anything  forbidden  in  the 
antitrust  laws  may  sue  therefor  in  any  district  court  of  the 
United  States  in  the  district  in  which  the  defendant  resides  or 
is  found  or  has  an  agent,  without  respect  to  the  amount  in 
controversy,  and  shall  recover  threefold  the  damages  by  him 
sustained,  and  the  cost  of  suit,  including  a  reasonable  attor- 
ney's fee. 

This  is  an  extension  of  section  7  of  the  Sherman  law. 

Sec.  5.  That  a  final  judgment  or  decree  hereafter  ren- 
dered in  any  criminal  prosecution  or  in  any  suit  or  proceeding 
in  equity  brought  by  or  on  behalf  of  the  United  States  under 
the  antitrust  laws  to  the  effect  that  a  defendant  has  violated 
said  laws  shall  be  prima  facie  evidence  against  such  defendant 
in  any  suit  or  proceeding  brought  by  any  other  party  against 
such  defendant  under  said  laws  as  to  all  matters  respecting 
which  said  judgment  or  decree  would  be  an  estoppel  as 
between  the  parties  thereto:  Provided,  This  section  shall  not 
apply  to  consent  judgments  or  decrees  entered  before  any  tes- 
timony has  been  taken:  Provided  further,  This  section  shall 
not  apply  to  consent  judgments  or  decrees  rendered  in  crim- 
inal proceedings  or  suits  in  equity,  now  pending,  in  which  the 
taking  of  testimony  has  been  commenced  but  has  not  been 
concluded,  provided  such  judgments  or  decrees  are  rendered 
before  any  further  testimony  is  taken. 

Whenever  any  suit  or  proceeding  in  equity  or  criminal 
prosecution  is  instituted  by  the  United  States  to  prevent, 
restrain  or  punish  violations  of  any  of  the  antitrust  laws,  the 
running  of  the  statute  of  limitations  in  respect  of  each  and 
every  private  right  of  action  arising  under  said  laws  and  based 
in  whole  or  in  part  on  any  matter  complained  of  in  said  suit 
or  proceeding  shall  be  suspended  during  the  pendency  thereof. 

Sec.  6.  That  the  labor  of  a  human  being  is  not  a  com- 
modity or  article  of  commerce.  Nothing  contained  in  the  anti- 
trust laws  shall  be  construed  to  forbid  the  existence  and  opera- 
tion of  labor,  agricultural,  or  horticultural  organizations,  insti* 
tuted  for  the  purposes  of  mutual  help,  and  not  having  capital 


382  THE  NEW  COMPETITION 

stock  or  conducted  for  profit,  or  to  forbid  or  restrain  indi- 
vidual members  of  such  organizations  from  lawfully  carrying 
out  the  legitimate  objects  thereof;  nor  shall  such  organiza- 
tions, or  the  members  thereof,  be  held  or  construed  to  be 
illegal  combinations  or  conspiracies  in  restraint  of  trade,  under 
the  antitrust  laws. 

The  adoption  of  this  exemption  is  significant,  in  that  it  is 
a  step  in  the  direction  of  relieving  labor  and  agricultural  organ- 
izations from  the  operation  of  laws  which  restrain  commercial 
and  industrial  organizations.  Strictly  c6nstrued  the  exemp- 
tion means  nothing.  As  a  matter  of  fact  there  was  nothing 
in  the  anti-trust  laws  that  ever  has  been  construed  "to  forbid 
the  existence  and  operation  of  labor,  agricultural,  or  horticul- 
tural organizations,  instituted  for  the  purposes  of  mutual 
help,"  etc.,  or  "to  forbid  or  restrain  individual  members  of 
such  organizations  from  lawfully  carrying  out  the  legitimate 
objects  thereof."  No  labor  or  agricultural  union  has  been  held 
contrary  to  the  Sherman  law  simply  because  it  was  a  combi- 
nation. The  courts,  however,  have  dealt  with  the  illegal  acts 
and  criminal  conspiracies  of  such  organizations.  There  is 
nothing  in  this  section  6  of  the  Clayton  law  to  prevent  the  pros- 
ecution of  any  union  or  member  of  a  union  for  criminal  con- 
duct. It  is  a  matter  of  common  knowledge  that  labor  unions 
are  organized  for  the  express  purpose  of  advancing  wag^s, 
and  agricultural  organizations  are  frequently  organized  for  the 
express  purpose  of  advancing  prices,  but  no  such  organizations 
have  ever  been  prosecuted  on  that  ground,  therefore  the  prac- 
tical situation  is  not  altered  by  this  section.  The  ultimate 
effect  may  be  to  awaken  the  country  to  the  economic  truth  that 
all  classes  should  not  only  be  permitted,  but  encouraged  to 
organize,  in  an  open  and  public  way,  to  better  their  conditions. 

The  broad  economic  proposition  contained  in  the  first 
clause  of  the  section,  namely,  ''The  labor  of  a  human  being  is 
not  a  commodity  or  article  of  commerce/'  meets  with  the 
hearty  approval  of  the  writer.  Nothing  but  confusion  of 
thought  can  result  from  attempts  to  deal  with  labor  as  if  it 
were  identical  with  the  products  of  labor.* 

1  Sec  also  Chapter  XIX,  especially  page  346. 


CLAYTON  LAW  383 

Sec.  7.  That  no  corporation  engaged  in  commerce  shall 
acquire,  directly  or  indirectly,  the  whole  or  any  part  of  the 
stock  or  other  share  capital  of  another  corporation  engaged 
also  in  commerce,  where  the  effect  of  such  acquisition  may 
be  to  substantially  lessen  competition  between  the  corporation 
whose  stock  is  so  acquired  and  the  corporation  making  the 
acquisition,  or  to  restrain  such  commerce  in  any  section  or 
community,  or  tend  to  create  a  monopoly  of  any  line  of 
commerce. 

No  corporation  shall  acquire,  directly  or  indirectly,  the 
whole  or  any  part  of  the  stock  or  other  share  capital  of  two 
or  more  corporations  engaged  in  commerce  where  the  effect 
of  such  acquisition,  or  the  use  of  such  stock  by  the  voting  or 
granting -of  proxies  or  otherwise,  may  be  to  substantially  lessen 
competition  between  such  corporations,  or  any  of  them,^  whose 
stock  or  other  share  capital  is  so  acquired,  or  to  restrain  such 
commerce  in  any  section  or  community,  or  tend  to  create  a 
monopoly  of  any  line  of  corhmerce. 

This  section  shall  not  apply  to  corporations  purchasing 
such  stock  solely  for  investment  and  not  using  the  same  by 
voting  or  otherwise  to  bring  about,  or  in  attempting  to  bring 
about,  the  substantial  lessening  of  competition.  Nor  shall  any- 
thing contained  in  this  section  prevent  a  corporation  engaged 
in  commerce  from  causing  the  formation  of  subsidiary  cor- 
porations for  the  actual  carrying  on  of  their  immediate  lawful 
business,  or  the  natural  and  legitimate  branches  or  extensions 
thereof,  or  from  owning  and  holding  all  or  a  part  of  the  stock 
of  such  subsidiary  corporations,  when  the  effect  of  such  for- 
mation is  not  to  substantially  lessen  competition. 

Nor  shall  anything  herein  contained  be  construed  to  pro- 
hibit any  common  carrier  subject  to  the  laws  to  regulate  com- 
merce from  aiding  in  the  construction  of  branches  or  short 
lines  so  located  as  to  become  feeders  to  the  main  line  of  the 
company  so  aiding  in  such  construction  or  from  acquiring  or 
owning  all  or  any  part  of  the  stock  of  such  branch  lines,  nor 
to  prevent  any  such  common  carrier  from  acquiring  and  own- 
ing all  or  any  part  of  the  stock  of  a  branch  or  short  line 
constructed  by  an  independent  company  where  there  is  no 
substantial  competition  between  the  company  owning  the 
branch  line  so  constructed  and  the  company  owning  the  main 
line  acquiring  the  property  or  an  interest  therein,  nor  to  pre- 
vent such  common  carrier  from  extending  any  of  its  lines 
through  the  medium  of  the  acquisition  of  stock  or  otherwise 
of  any  other  such  common  carrier  where  there  is  no  substan- 
tial competition  between  the  company  extending  its  lines  and 


384  THE  NEW  COMPETITION 

the  company  whose  stock,  property,  or  an  interest  therein  is 
so  acquired. 

Nothing  contained  in  this  section  shall  be  held  to  affect  or 
impair  any  right  heretofore  legally  acquired:  Provided,  That 
nothing  in  this  section  shall  be  held  or  construed  to  authorize 
or  make  lawful  anything  heretofore  prohibited  or  made  illegal 
by  the  antitrust  laws,  nor  to  exempt  any  person  from  the  penal 
provisions  thereof  or  the  civil  remedies  therein  provided. 

The  several  qualifications  and  exemptions  contained  in  the 
above  section  very  materially  lessen  its  force,  but  inasmuch  as 
it  would  be  a  question  of  fact  whether  the  acquisition  of  cer- 
tain stock  substantially  lessened  competition,  or  restrained 
interstate  commerce,  or  tended  to  create  a  monopoly,  corpora- 
tions will  be  exceedingly  cautious  in  acquiring  and  holding  the 
stocks  of  other  corporations. 

Sec.  8.  That  from  and  after  two  years  from  the  date  of 
the  approval  of  this  Act  no  person  shall  at  the  same  time  be 
a  director  or  other  officer  or  employee  of  more  than  one  bank, 
banking  association  or  trust  company,  organized  or  operating 
under  the  laws  of  the  United  States,  either  of  which  has  depos- 
its, capital,  surplus,  and  undivided  profits  aggregating  more 
than  $5,000,000;  and  no  private  banker  or  person  who  is  a 
director  in  any  bank  or  trust  company,  organized  and  operat- 
ing under  the  laws  of  a  State,  having  deposits,  capital,  surplus, 
and  undivided  profits  aggregating  more  than  $5,000,000,  shall 
be  eligible  to  be  a  director  in  any  bank  or  banking  association 
organized  or  operating  under  the  laws  of  the  United  States. 
The  eligibility  of  a  director,  officer,  or  employee  under  the 
foregoing  provisions  shall  be  determined  by  the  average  amount 
of  deposits,  capital,  surplus,  and  undivided  profits  as  shown 
in  the  official  statements  of  such  bank,  banking  association,  or 
trust  company  filed  as  provided  by  law  during  the  fiscal  year 
next  preceding  the  date  set  for  the  annual  election  of  directors, 
and  when  a  director,  officer,  or  employee  has  been  elected  or 
selected  in  accordance  with  the  provisions  of  this  Act  it  shall 
be  lawful  for  him  to  continue  as  such  for  one  year  thereafter 
under  said  election  or  employment. 

No  bank,  banking  association  or  trust  company,  organized 
or  operating  under  the  laws  of  the  United  States,  in  any  city 
or  incorporated  town  or  village  of  more  than  two  hundred 
thousand  inhabitants,  as  shown  by  the  last  preceding  decennial 
census  of  the  United  States,  shall  have  as  a  director  or  other 


CLAYTON  LAW  385 

officer  or  employee  any  private  banker  or  any  director  or 
other  officer  or  employee  of  any  other  bank,  banking  associa- 
tion or  trust  company  located  in  the  same  place:  Provided, 
That  nothing  in  this  section  shall  apply  to  mutual  savings 
banks  not  having  a  capital  stock  represented  by  shares:  Pro- 
vided  further,  That  a  director  or  other  officer  or  employee  of 
such  bank,  banking  association  or  trust  company  may  be  a 
director  or  other  officer  or  employee  of  not  more  than  one 
other  bank  or  trust  company  organized  under  the  laws  of  the 
United  States  or  any  State  where  the  entire  capital  stock  of 
one  is  owned  by  stockholders  in  the  other:  And  provided  fur- 
ther, That  nothing  contained  in  this  section  shall  forbid  a 
director  of  class  A  of  a  Federal  reserve  bank,  as  defined  in 
the  Federal  Reserve  Act  from  being  an  officer  or  director 
or  both  an  officer  and  director  in  one  member  bank. 

That  from  and  after  two  years  from  the  date  of  the 
approval  of  this  Act  no  person  at  the  same  time  shall  be  a 
director  in  any  two  or  more  corporations,  any  one  of  which 
has  capital,  surplus,  and  undivided  profits  aggregating  more 
than  $i,ocxD,ooo,  engaged  in  whole  or  in  part  in  commerce, 
other  than  banks,  banking  associations,  trust  companies  and 
common  carriers  subject  to  the  Act  to  regulate  commerce, 
approved  February  fourth,  eighteen  hundred  and  eighty- 
seven,  if  such  corporations  are  or  shall  have  been  theretofore, 
by  virtue  of  their  business  and  location  of  operation,  competi- 
tors, so  that  the  elimination  of  competition  by  agreement 
between  them  would  constitute  a  violation  of  any  of  the  provi- 
sions of  any  of  the  antitrust  laws.  The  eligibility  of  a  director 
under  the  foregoing  provision  shall  be  determined  by  the  aggre- 
gate amount  of  the  capital,  surplus,  and  undivided  profits, 
exclusive  of  dividends  declared  but  not  paid  to  stockholders, 
at  the  end  of  the  fiscal  year  of  said  corporation  next  preceding 
the  election  of  directors,  and  when  a  director  has  been  elected 
in  accordance  with  the  provisions  of  this  Act  it  shall  be  lawful 
for  him  to  continue  as  such  for  one  year  thereafter. 

When  any  person  elected  or  chosen  as  a  director  or  officer 
or  selected  as  an  employee  of  any  bank  or  other  corporation 
subject  to  the  provisions  of  this  Act  is  eligible  at  the  time  of 
his  election  or  selection  to  act  for  such  bank  or  other  corpora- 
tion in  such  capacity  his  eligibility  to  act  in  such  capacity  shall 
not  be  affected  and  he  shall  not  become  or  be  deemed  amenable 
to  any  of  the  provisions  hereof  by  reason  of  any  change  in 
the  affairs  of  such  bank  or  other  corporation  from  whatsoever 
cause,  whether  specifically  excepted  by  any  of  the  provisions 
hereof  or  not,  until  the  expiration  of  one  year  from  the  date 
of  his  election  or  employment. 


386  THE  NEW  COMPETITION 

Sec.  9.  Every  president,  director,  officer  or  manager  of 
any  firm,  association  or  corporation  engaged  in  commerce  as 
a  common  carrier,  who  embezzles,  steals,  abstracts  or  willfully 
misapplies,  or  willfully  permits  to  be  misapplied,  any  of  the 
moneys,  funds,  credits,  securities,  property  or  assets  of  such 
firm,  association  or  corporation,  arising  or  accruing  from,  or 
used  in,  such  commerce,  in  whole  or  in  part,  or  willfully  or 
knowingly  converts  the  same  to  his  own  use  or  to  the  use  of 
another,  shall  be  deemed  guilty  of  a  felony  and  upon  con- 
viction shall  be  fined  not  less  than  $500  or  confined  in  the 
penitentiary  not  less  than  one  year  nor  more  than  ten  years, 
or  both,  in  the  discretion  of  the  court. 

Prosecutions  hereunder  may  be  in  the  district  court  of  the 
United  States  for  the  district  wherein  the  oflfense  may  have 
been  committed. 

That  nothing  in  this  section  shall  be  held  to  take  away  or 
impair  the  jurisdiction  of  the  courts  of  the  several  States 
under  the  laws  thereof;  and  a  judgment  of  conviction  or 
acquittal  on  the  merits  under  the  laws  of  any  State  shall  be 
a  bar  to  any  prosecution  hereunder  for  the  same  act  or  acts. 

This  section  may  cover  political  and  similar  contributions 
of  the  funds  of  corporations  and,  therefore,  requires  careful 
consideration  when  such  contributions  are  solicited. 

Sec.  10.  That  after  two  years  from  the  approval  of  this 
Act  no  common  carrier  engaged  in  commerce  shall  have  any 
dealings  in  securities,  supplies  or  other  articles  of  commerce, 
or  shall  make  or  have  any  contracts  for  construction  or  main- 
tenance of  any  kind,  to  the  amount  of  more  than  $50,000,  in 
the  aggregate,  in  any  one  year,  with  another  corporation,  firm, 
partnership  or  association  when  the  said  common  carrier  shall 
have  upon  its  board  of  directors  or  as  its  president,  manager 
or  as  its  purchasing  or  selling  officer,  or  agent  in  the  particular 
transaction,  any  person  who  is  at  the  same  time  a  director, 
manager,  or  purchasing  or  selling  officer  of,  or  who  has  any 
substantial  interest  in,  such  other  corporation,  firm,  partnership 
or  association,  unless  and  except  such  purchases  shall  be  made 
from,  or  such  dealings  shall  be  with,  the  bidder  whose  bid  is 
the  most  favorable  to  such  common  carrier,  to  be  ascertained 
by  competitive  bidding  under  regulations  to  be  prescribed  by 
rule  or  otherwise  by  the  Interstate  Commerce  Commission. 
No  bid  shall  be  received  unless  the  name  and  address  of  the 
bidder  or  the  names  and  addresses  of  the  officers,  directors  and 
general  managers  thereof,  if  the  bidder  be  a  corporation,  or  of 


CLAYTON  LAW  387 

the  members,  if  it  be  a  partnership  or  firm,  be  given  with  the 
bid. 

Any  person  who  shall,  directly  or  indirectly,  do  or  attempt 
to  do  anything  to  prevent  anyone  from  bidding  or  shall  do 
any  act  to  prevent  free  and  fair  competition  among  the  bidders 
or  those  desiring  to  bid  shall  be  punished  as  prescribed  in  this 
section  in  the  case  of  an  officer  or  director. 

Every  such  common  carrier  having  any  such  transactions 
or  making  any  such  purchases  shall  within  thirty  days  after 
making  the  same  file  with  the  Interstate  Commerce  Commis- 
sion a  full  and  detailed  statement  of  the  transaction  showing 
the  manner  of  the  competitive  bidding,  who  were  the  bidders, 
and  the  names  and  addresses  of  the  directors  and  officers  of 
the  corporations  and  the  members  of  the  firm  or  partnership 
bidding ;  and  whenever  the  said  commission  shall,  after  investi- 
gation or  hearing,  have  reason  to  believe  that  the  law  has  been 
violated  in  and  about  the  said  purchases  or  transactions  it 
shall  transmit  all  papers  and  documents  and  its  own  views  or 
findings  regarding  the  transaction  to  the  Attorney  General. 

If  any  common  carrier  shall  violate  this  section  it  shall  be 
fined  not  exceeding  $25,000;  and  every  such  director,  agent, 
manager  or  officer  thereof  who  shall  have  knowingly  voted  for 
or  directed  the  act  constituting  such  violation  or  who  shall 
have  aided  or  abetted  in  such  violation  shall  be  deemed  guilty 
of  a  misdemeanor  and  shall  be  fined  not  exceeding  $5,000,  or 
confined  in  jail  not  exceeding  one  year,  or  both,  in  the  discre- 
tion of  the  court. 

This  section  does  not  go  into  effect  until  after  October  15, 
1916.  After  that  date  railroad  buying  will  be  on  an  entirely 
different  footing.  No  doubt  prior  to  that  date  the  Interstate 
Commerce  Commission  will  issue  the  regulations  contemplated 
by  this  particular  section. 

Sec.  II.  That  authority  to  enforce  compliance  with  sec- 
tions two,  three,  seven  and  eight  of  this  Act  by  the  persons 
respectively  subject  thereto  is  hereby  vested:  in  the  Interstate 
Commerce  Commission  where  applicable  to  common  carriers, 
in  the  Federal  Reserve  Board  where  applicable  to  banks,  bank- 
ing associations  and  trust  companies,  and  in  the  Federal  Trade 
Commission  where  applicable  to  all  other  character  of  com- 
merce, to  be  exercised  as  follows : 

Whenever  the  commission  or  board  vested  with  jurisdic- 
tion thereof  shall  have  reason  to  believe  that  any  person  is 


388  THE  NEW  COMPETITION 

violating  or  has  violated  any  of  the  provisions  of  sections  two, 
three,  seven  and  eight  of  this  Act,  it  shall  issue  and  serve  upon 
such  person  a  complaint  stating  its  charges  in  that  respect, 
and  containing  a  notice  of  a  hearing  upon  a  day  and  at  a  place 
therein  fixed  at  least  thirty  days  after  the  service  of  said  com- 
plaint. The  person  so  complained  of  shall  have  the  right  to 
appear  at  the  place  and  time  so  fixed  and  show  cause  why  an 
order  should  not  be  entered  by  the  commission  or  board  requir- 
ing such  person  to  cease  and  desist  from  the  violation  of  the 
law  so  charged  in  said  complaint.  Any  person  may  make 
application,  and  upon  good  cause  shown  may  be  allowed  by 
the  commission  or  board,  to  intervene  and  appear  in  said  pro- 
ceeding by  counsel  or  in  person.  The  testimony  in  any  such 
proceeding  shall  be  reduced  to  writing  and  filed  in  the  office 
of  the  commission  or  board.  If  upon  such  hearing  the  com- 
mission or  board,  as  the  case  may  be,  shall  be  of  the  opinion 
that  any  of  the  provisions  of  said  sections  have  been  or  are 
being  violated,  it  shall  make  a  report  in  writing  in  which  it 
shall  state  its  findings  as  to  the  facts,  and  shall  issue  and  cause 
to  be  served  on  such  person  an  order  requiring  such  person  to 
cease  and  desist  from  such  violations,  and  divest  itself  of  the 
stock  held  or  rid  itself  of  the  directors  chosen  contrary  to  the 
provisions  of  sections  seven  and  eight  of  this  Act,  if  any 
there  be,  in  the  manner  and  within  the  time  fixed  by  said  order. 
Until  a  transcript  of  the  record  in  such  hearing  shall  have  been 
filed  in  a  circuit  court  of  appeals  of  the  United  States,  as  here- 
inafter provided,  the  commission  or  board  may  at  any  time, 
upon  such  notice  and  in  such  manner  as  it  shall  deem  proper, 
modify  or  set  aside,  in  whole  or  in  part,  any  report  or  any 
order  made  or  issued  by  it  under  this  section. 

If  such  person  fails  or  neglects  to  obey  such  order  of  the 
commission  or  board  while  the  same  is  in  efiFect,  the  commis- 
sion or  board  may  apply  to  the  circuit  court  of  appeals  of  the 
United  States,  within  any  circuit  where  the  violation  com- 
plained of  was  or  is  being  committed  or  where  such  person 
resides  or  carries  on  business,  for  the  enforcement  of  its  order, 
and  shall  certify  and  file  with  its  application  a  transcript  of 
the  entire  record  in  the  proceeding,  including  all  the  testimony 
taken  and  the  report  and  order  of  the  commission  or  board. 
Upon  such  filing  of  the  application  and  transcript  the  court 
shall  cause  notice  thereof  to  be  served  upon  such  person  and 
thereupon  shall  have  jurisdiction  of  the  proceeding  and  of  the 
question  determined  therein,  and  shall  have  power  to  make  and 
enter  upon  the  pleadings,  testimony,  and  proceedings  set  forth 
in  such  transcript  a  decree  affirming,  modifying,  or  setting 


CLAYTON  LAW  389 

aside  the  order  of  the  commission  or  board.  The  findings  of 
the  commission  or  board  as  to  the  facts,  if  supported  by  the 
testimony,  shall  be  conclusive.  If  either  party  shall  apply  to 
the  court  for  leave  to  adduce  additional  evidence,  and  shall 
show  to  the  satisfaction  of  the  court  that  such  additional  evi- 
dence is  material  and  that  there  were  reasonable  grounds  for 
the  failure  to  adduce  such  evidence  in  the  proceeding  before 
the  commission  or  board,  the  court  may  order  such  additional 
evidence  to  be  taken  before  the  commission  or  board  and  to  be 
adduced  upon  the  hearing  in  such  manner  and  upon  such  terms 
and  conditions  as  to  the  court  may  seem  proper.  The  commis- 
sion or  board  may  modify  its  findings  as  to  the  facts,  or  make 
new  findings,  by  reason  of  the  additional  evidence  so  taken, 
and  it  shall  file  such  modified  or  new  findings,  which,  if  sup- 
ported by  testimony,  shall  be  conclusive,  and  its  recommenda- 
tion, if  any,  for  the  modification  or  setting  aside  of  its  original 
order,  with  the  return  of  such  additional  evidence.  The  judg- 
ment and  decree  of  the  court  shall  be  final,  except  that  the 
same  shall  be  subject  to  review  by  the  Supreme  Court  upon 
certiorari  as  provided  in  section  two  hundred  and  forty  of  the 
Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  or 
board  to  cease  and  desist  from  a  violation  charged  may  obtain 
a  review  of  such  order  in  said  circuit  court  of  appeals  by  filing 
in  the  court  a  written  petition  praying  that  the  order  of  the 
commission  or  board  be  set  aside.  A  copy  of  such  petition 
shall  be  forthwith  served  upon  the  commission  or  board,  and 
thereupon  the  commission  or  board  forthwith  shall  certify  and 
file  in  the  court  a  transcript  of  the  record  as  hereinbefore  pro- 
vided. Upon  the  filing  of  the  transcript  the  court  shall  have 
the  same  jurisdiction  to  affirm,  set  aside,  or  modify  the  order 
of  the  commission  or  board  as  in  the  case  of  an  application  by 
the  commission  or  board  for  the  enforcement  of  its  order,  and 
the  findings  of  the  commission  or  board  as  to  the  facts,  if 
supported  by  testimony,  shall  in  like  manner  be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the  United 
States  to  enforce,  set  aside,  or  modify  orders  of  the  commis- 
sion or  board  shall  be  exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be 
given  precedence  over  other  cases  pending  therein,  and  shall 
be  in  every  way  expedited.  No  order  of  the  commission  or 
board  or  the  judgment  of  the  court  to  enforce  the  same  shall 
in  any  wise  relieve  or  absolve  any  person  from  any  liability 
under  the  antitrust  Acts. 

Complaints,  orders,  and  other  processes  of  the  commission 


390  THE  NEW  COMPETITION 

or  board  under  this  section  may  be  served  by  anyone  duly 
authorized  by  the  commission  or  board,  either  (a)  by  deliver- 
ing a  copy  thereof  to  the  person  to  be  served,  or  to  a  member 
of  the  partnership  to  be  served,  or  to  the  president,  secretary, 
or  other  executive  officer  or  a  director  of  the  corporation  to 
be  served;  or  (b)  by  leaving  a  copy  thereof  at  the  principal 
office  or  place  of  business  of  such  person;  or  (c)  by  register- 
ing and  mailing  a  copy  thereof  addressed  to  such  person  at  his 
principal  office  or  place  of  business.  The  verified  return  by 
the  person  so  serving  said  complaint,  order  or  other  process 
setting  forth  the  manner  of  said  service  shall  be  proof  of  the 
same,  and  the  return  post-office  receipt  for  said  complaint, 
order,  or  other  process  registered  and  mailed  as  aforesaid  shall 
be  proof  of  the  service  of  the  same. 

This  section  is  important  in  that  it  confers  authority  upon 
the  Federal  Trade  Commission  to  enforce  compliance  with 
sections  2,  3,  7  and  8  of  the  Qayton  law,  insofar  as  those 
sections  apply  to  every  character  of  commerce  except  common 
carriers;  authority  over  common  carriers  being  vested  in  the 
Interstate  Commerce  Commission. 

It  is  also  important  in  that  it  indicates  in  simple  terms  the 
procedure. 

Sec.  12.  That  any  suit,  action,  or  proceeding  under  the 
antitrust  laws  against  a  corporation  may  be  brought  not  only 
in  the  judicial  district  whereof  it  is  an  inhabitant,  but  also  in 
any  district  wherein  it  may  be  found  or  transacts  business; 
and  all  process  in  such  cases  may  be  served  in  the  district  of 
which  it  is  an  inhabitant,  or  wherever  it  may  be  found. 

Sec.  13.  That  in  any  suit,  action,  or  proceeding  brought 
by  or  on  behalf  of  the  United  States  subpoenas  for  witnesses 
who  are  required  to  attend  a  court  of  the  tjnited  States  in  any 
judicial  district  in  any  case,  civil  or  criminal,  arising  under  the 
antitrust  laws  may  run  into  any  other  district :  Provided,  That 
in  civil  cases  no  writ  of  subpoena  shall  issue  for  witnesses 
living  out  of  the  district  in  which  the  court  is  held  at  a  greater 
distance  than  one  hundred  miles  from  the  place  of  holding 
the  same  without  the  permission  of  the  trial  court  being  first 
had  upon  proper  application  and  cause  shown. 

Sec.  14.  That  whenever  a  corporation  shall  violate  any 
of  the  penal  provisions  of  the  antitrust  laws,  such  violation 
shall  be  deemed  to  be  also  that  of  the  individual  directors, 
officers,  or  agents  of  such  corporation  who  shall  have  author- 


CLAYTON  LAW  391 

ized,  ordered,  or  done  any  of  the  acts  constituting  in  whole  or 
in  part  such  violation,  and  such  violation  shall  be  deemed  a 
misdemeanor,  and  upon  conviction  therefor  of  any  such  direc- 
tor, officer,  or  agent  he  shall  be  punished  by  a  fine  of  not 
exceeding  $5,000  or  by  imprisonment  for  not  exceeding  one 
year,  or  by  both,  in  the  discretion  of  the  court. 

This  section  makes  personal  the  guilt  of  officers  and  agents 
of  a  corporation  who  may  authorize,  or  order,  or  do  any  acts 
in  violation  of  the  anti- trust  laws ;  really  does  not  substantially 
change  existing  laws. 

Sec.  15.  That  the  several  district  courts  of  the  United 
States  are  hereby  invested  with  jurisdiction  to  prevent  and 
restrain  violations  of  this  Act^  and  it  shall  be  the  duty  of  the 
several  district  attorneys  of  the  United  States,  in  their  respect- 
ive districts,  under  the  direction  of  the  Attorney  General,  to 
institute  proceedings  in  equity  to  prevent  and  restrain  such 
violations.  Such  proceedings  may  be  by  way  of  petition  set- 
ting forth  the  case  and  praying  that  such  violation  shall  be 
enjoined  or  otherwise  prohibited.  When  the  parties  com- 
plained of  shall  have  been  duly  notified  of  such  petition,  the 
court  shall  proceed,  as  soon  as  may  be,  to  the  hearing  and 
determination  of  the  case;  and  pending  such  petition,  and 
before  final  decree,  the  court  may  at  any  time  make  such 
temporary  restraining  order  or  prohibition  as  shall  be  deemed 
just  in  the  premises.  Whenever  it  shall  appear  to  the  court 
before  which  any  such  proceeding  may  be  pending  that  the 
ends  of  justice  require  that  other  parties  should  be  brought 
before  the  court,  the  court  may  cause  them  to  be  summoned 
whether  they  reside  in  the  district  in  which  the  court  is  held 
or  not,  and  subpoenas  to  that  end  may  be  served  in  any  district 
by  the  marshal  thereof. 

Sec.  16.  That  any  person,  firm,  corporation,  or  associa- 
tion shall  be  entitled  to  sue  for  and  have  injunctive  relief,  in 
any  court  of  the  United  States  having  jurisdiction  over  the 
parties,  against  threatened  loss  or  damage  by  a  violation  of  the 
antitrust  laws,  including  sections  two,  three,  seven  and  eight 
of  this  Act,  when  and  under  the  same  conditions  and  principles 
as  injunctive  relief  against  threatened  conduct  that  will  cause 
loss  or  damage  is  granted  by  courts  of  equity,  under  the  rules 
governing  such  proceedings,  and  upon  the  execution  of  proper 
bond  against  damages  for  an  injunction  improvidently  granted 
and  a  showing  that  the  danger  of  irreparable  loss  or  damage 
is  immediate,  a  preliminary  injunction  may  issue:  Provided, 


392  THE  NEW  COMPETITION 

That  nothing  herein  contained  shall  be  construed  to  entitle 
any  person,  firm,  corporation,  or  association,  except  the  United 
States,  to  bring  suit  in  equity  for  injunctive  relief  against  any 
common  carrier  subject  to  the  provisions  of  the  Act  to  regu- 
late commerce,  approved  February  fourth,  eighteen  hundred 
and  eighty-seven,  in  respect  of  any  matter  subject  to  the  regu- 
lation, supervision,  or  other  jurisdiction  of  the  Interstate 
Commerce  Commission. 

Sec.  17.  That  no  preHminary  injunction  shall  be  issued 
without  notice  to  the  opposite  party. 

No  temporary  restraining  order  shall  be  granted  without 
notice  to  the  opposite  party  unless  it  shall  clearly  appear  from 
specific  facts  shown  by  affidavit  or  by  the  verified  bill  that 
immediate  and  irreparable  injury,  loss,  or  damage  will  result 
to  the  applicant  before  notice  can  be  served  and  a  hearing  had 
thereon.  Every  such  temporary  restraining  order  shall  be 
indorsed  with  the  date  and  hour  of  issuance,  shall  be  forth- 
with filed  in  the  clerk's  office  and  entered  of  record,  shall  define 
the  injury  and  state  why  it  is  irreparable  and  why  the  order 
was  granted  without  notice,  and  shall  by  its  terms  expire  within 
such  time  after  entry,  not  to  exceed  ten  days,  as  the  court  or 
judge  may  fix,  unless  within  the  time  so  fixed  the  order  is 
extended  for  a  like  period  for  good  cause  shown,  and  the 
reasons  for  such  extension  shall  be  entered  of  record.  In  case 
a  temporary  restraining  order  shall  be  granted  without  notice 
in  the  contingency  specified,  the  matter  of  the  issuance  of  a 
preliminary  injunction  shall  be  set  down  for  a  hearing  at  the 
earliest  possible  time  and  shall  take  precedence  of  all  matters 
except  older  matters  of  the  same  character;  and  when  the 
same  comes  up  for  hearing  the  party  obtaining  the  temporary 
restraining  order  shall  proceed  with  the  application  for  a  pre- 
liminary injunction,  and  if  he  does  not  do  so  the  court  shall 
dissolve  the  temporary  restraining  order.  Upon  two  days' 
notice  to  the  party  obtaining  such  temporary  restraining  order 
the  opposite  party  may  appear  and  move  the  dissolution  or 
modification  of  the  order,  and  in  that  event  the  court  or  judge 
shall  proceed  to  hear  and  determine  the  motion  as  expeditiously 
as  the  ends  of  justice  may  require. 

Section  two  hundred  and  sixty-three  of  an  Act  entitled 
"An  Act  to  codify,  revise,  and  amend  the  laws  relating  to  the 
judiciary,"  approved  March  third,  nineteen  hundred  and 
eleven,  is  hereby  repealed. 

Nothing  in  this  section  contained  shall  be  deemed  to  alter, 
repeal,  or  amend  section  two  hundred  and  sixty-six  of  an  Act 
entitled  "An  Act  to  codify,  revise,  and  amend  the  laws  relating 


CLAYTON  LAW  393 

to  the  judiciary,"  approved  March  third,  nineteen  hundred 
and  eleven. 

Sec.  1 8.  That,  except  as  otherwise  provided  in  section  i6 
of  this  Act,  no  restraining  order  or  interlocutory  order  of 
injunction  shall  issue,  except  upon  the  giving  of  security  by 
the  applicant  in  such  sum  as  the  court  or  judge  may  deem 
proper,  conditioned  upon  the  payment  of  such  costs  and  dam- 
ages as  may  be  incurred  or  suffered  by  any  party  who  may  be 
found  to  have  been  wrongfully  enjoined  or  restrained  thereby. 

Sec.  19.  That  every  order  of  injunction  or  restraining 
order  shall  set  forth  the  reasons  for  the  issuance  of  the  same, 
shall  be  specific  in  terms,  and  shall  describe  in  reasonable 
detail,  and  not  by  reference  to  the  bill  of  complaint  or  other 
document,  the  act  or  acts  sought  to  be  restrained,  and  shall 
be  binding  only  upon  the  parties  to  the  suit,  their  officers, 
agents,  servants,  employees,  and  attorneys,  or  those  in  active 
concert  or  participating  with  them,  and  who  shall,  by  personal 
service  or  otherwise,  have  received  actual  notice  of  the  same. 

Sec.  20.  That  no  restraining  order  or  injunction  shall 
be  granted  by  any  court  of  the  United  States,  or  a  judge  or 
the  judges  thereof,  in  any  case  between  an  employer  and 
employees,  or  between  employers  and  employees,  or  between 
employees,  or  between  persons  employed  and  persons  seeking 
employment,  involving,  or  growing  out  of,  a  dispute  concern- 
ing terms  or  conditions  of  employment,  unless  necessary  to 
prevent  irreparable  injury  to  property,  or  to  a  property  right, 
of  the  party  making  the  application,  for  which  injury  there  is 
no  adequate  remedy  at  law,  and  such  property  or  property 
right  must  be  described  with  particularity  in  the  application, 
which  must  be  in  writing  and  sworn  to  by  the  applicant  or  by 
his  agent  or  attorney. 

And  no  such  restraining  order  or  injunction  shall  prohibit 
any  person  or  persons,  whether  singly  or  in  concert,  from 
terminating  any  relation  of  employment,  or  from  ceasing  to 
perform  any  work  or  labor,  or  from  recommending,  advising, 
or  persuading  others  by  peaceful  means  so  to  do;  or  from 
attending  at  any  place  where  any  such  person  or  persons  may 
lawfully  be,  for  the  purpose  of  peacefully  obtaining  or  com- 
municating information,  or  from  peacefully  persuading  any 
person  to  work  or  to  abstain  from  working;  or  from  ceasing 
to  patronize  or  to  employ  any  party  to  such  dispute,  or  from 
recommending,  advising,  or  persuading  others  by  peaceful  and 
lawful  means  so  to  do ;  or  from  paying  or  giving  to,  or  with- 
holding from,  any  person  engaged  in  such  dispute,  any  strike 
benefits  or  other  moneys  or  things  of  value ;  or  from  peaceably 


394  THE  NEW  COMPETITION 

assembling  in  a  lawful  manner,  and  for  lawful  purposes;  or 
from  doing  any  act  or  thing  which  might  lawfully  be  done  in 
the  absence  of  such  dispute  by  any  party  thereto;  nor  shall 
any  of  the  acts  specified  in  this  paragraph  be  considered  or 
held  to  be  violations  of  any  law  of  the  United  States. 

Sec.  21.  That  any  person  who  shall  willfully  disobey  any 
lawful  writ,  process,  order,  rule,  decree,  or  command  of  any 
district  court  of  the  United  States  or  any  court  of  the  District 
of  Columbia  by  doing  any  act  or  thing  therein,  or  thereby  for- 
bidden to  be  done  by  him,  if  the  act  or  thing  so  done  by  him 
be  of  such  character  as  to  constitute  also  a  criminal  offense 
under  any  statute  of  the  United  States,  or  under  the  laws  of 
any  State  in  which  the  act  was  committed,  shall  be  proceeded 
against  for  his  said  contempt  as  hereinafter  provided. 

Sec.  22.  That  whenever  it  shall  be  made  to  appear  to  any 
district  court  or  judge  thereof,  or  to  any  judge  therein  sitting, 
by  the  return  of  a  proper  officer  on  lawful  process,  or  upon 
the  affidavit  of  some  credible  person,  or  by  information  filed  by 
any  district  attorney,  that  there  is  reasonable  ground  to  believe 
that  any  person  has  been  guilty  of  such  contempt,  the  court 
or  judge  thereof,  or  any  judge  therein  sitting,  may  issue  a  rule 
requiring  the  said  person  so  charged  to  show  cause  upon  a  day 
certain  why  he  should  not  be  punished  therefor,  which  rule, 
together  with  a  copy  of  the  affidavit  or  information,  shall  be 
served  upon  the  person  charged,  with  sufficient  promptness 
to  enable  him  to  prepare  for  and  make  return  to  the  order  at 
the  time  fixed  therein.  If  upon  or  by  such  return,  in  the  judg- 
ment of  the  court,  the  alleged  contempt  be  not  sufficiently 
purged,  a  trial  shall  be  directed  at  a  time  and  place  fixed  by 
the  court:  Provided,  hoivever,  That  if  the  accused,  being  a 
natural  person,  fail  or  refuse  to  make  return  to  the  rule  to 
show  cause,  an  attachment  may  issue  against  his  person  to 
compel  an  answer,  and  in  case  of  his  continued  failure  or 
refusal,  or  if  for  any  reason  it  be  impracticable  to  dispose  of 
the  matter  on  the  return  day,  he  may  be  required  to  give  rea- 
sonable bail  for  his  attendance  at  the  trial  and  his  submission 
to  the  final  judgment  of  the  court.  Where  the  accused  is  a 
body  corporate,  an  attachment  for  the  sequestration  of  its  prop- 
erty may  be  issued  upon  like  refusal  or  failure  to  answer. 

In  all  cases  within  the  purview  of  this  Act  such  trial  may 
be  by  the  court,  or,  upon  demand  of  the  accused,  by  a  jury; 
in  which  latter  event  the  court  may  impanel  a  jury  from  the 
jurors  then  in  attendance,  or  the  court  or  the  judge  thereof 
in  chambers  may  cause  a  sufficient  number  of  jurors  to  be 
selected  and  summoned,  as  provided  by  law,  to  attend  at  the 


CLAYTON  LAW  395 

time  and  place  of  trial,  at  which  time  a  jury  shall  be  selected 
and  impaneled  as  upon  a  trial  for  a  misdemeanor;  and  such 
trial  shall  conform,  as  near  as  may  be,  to  the  practice  in 
criminal  cases  prosecuted  by  indictment  or  upon  infor- 
mation. 

If  the  accused  be  found  guilty,  judgment  shall  be  entered 
accordingly,  prescribing  the  punishment,  either  by  fine  or 
imprisonment,  or  both,  in  the  discretion  of  the  court.  Such 
fine  shall  be  paid  to  the  United  States  or  to  the  complainant 
or  other  party  injured  by  the  act  constituting  the  contempt,  or 
may,  where  more  than  one  is  so  damaged,  be  divided  or  appor- 
tioned among  them  as  the  court  may  direct,  but  in  no  case 
shall  the  fine  to  be  paid  to  the  United  States  exceed,  in  case 
the  accused  is  a  natural  person,  the  sum  of  $1,000,  nor  shall 
such  imprisonment  exceed  the  term  of  six  months :  Provided, 
That  in  any  case  the  court  or  a  judge  thereof  may,  for  good 
cause  shown,  by  affidavit  or  proof  taken  in  open  court  or  before 
such  judge  and  filed  with  the  papers  in  the  case,  dispense  with 
the  rule  to  show  cause,  and  may  issue  an  attachment  for  the 
arrest  of  the  person  charged  with  contempt;  in  which  event 
such  person,  when  arrested,  shall  be  brought  before  such  court 
or  a  judge  thereof  without  unnecessary  delay  and  shall  be 
admitted  to  bail  in  a  reasonable  penalty  for  his  appearance  to 
answer  to  the  charge  or  for  trial  for  the  contempt ;  and  there- 
after the  proceedings  shall  be  the  same  as  provided  herein  in 
case  the  rule  had  issued  in  the  first  instance. 

Sec.  23.  That  the  evidence  taken  upon  the  trial  of  any  per- 
sons so  accused  may  be  preserved  by  bill  of  exceptions,  and  any 
judgment  of  conviction  may  be  reviewed  upon  writ  of  error  in 
all  respects  as  now  provided  by  law  in  criminal  cases,  and  may 
be  affirmed,  reversed,  or  modified  as  justice  may  require.  Upon 
the  granting  of  such  writ  of  error,  execution  of  judgment  shall 
be  stayed,  and  the  accused,  if  thereby  sentenced  to  imprison- 
ment, shall  be  admitted  to  bail  in  such  reasonable  sum  as  may 
be  required  by  the  court,  or  by  any  justice,  or  any  judge  of 
any  district  court  of  the  United  States  or  any  court  of  the  Dis- 
trict of  Columbia. 

Sec.  24.  That  nothing  herein  contained  shall  be  construed 
to  relate  to  contempts  committed  in  the  presence  of  the  court, 
or  so  near  thereto  as  to  obstruct  the  administration  of  justice, 
nor  to  contempts  committed  in  disobedience  of  any  lawful 
writ,  process,  order,  rule,  decree,  or  command  entered  in  any 
suit  or  action  brought  or  prosecuted  in  the  name  of,  or  on  be- 
half of,  the  United  States,  but  the  same,  and  all  other  cases  of 
contempt  not  specifically  embraced  within  section  twenty-one 


396  THE  NEW  COMPETITION 

of  this  Act,  may  be  punished  in  conformity  to  the  usages  at 
law  and  in  equity  now  prevailing. 

Sec.  25.  That  no  proceeding  for  contempt  shall  be  in- 
stituted against  any  person  unless  begun  within  one  year  from 
the  date  of  the  act  complained  of ;  nor  shall  any  such  proceed- 
ing be  a  bar  to  any  criminal  prosecution  for  the  same  act  or 
acts ;  but  nothing  herein  contained  shall  affect  any  proceedings 
in  contempt  pending  at  the  time  of  the  passage  of  this  Act. 

Sec.  26.  If  any  clause,  sentence,  paragraph,  or  part  of 
this  Act  shall,  for  any  reason,  be  adjudged  by  any  court  of 
competent  jurisdiction  to  be  invalid,  such  judgment  shall  not 
affect,  impair,  or  invalidate  the  remainder  thereof,  but  shall  be 
confined  in  its  operation  to  the  clause,  sentence,  paragraph,  or 
part  thereof  directly  involved  in  the  controversy  in  which  such 
judgment  shall  have  been  rendered. 

Approved,  October  15,  1914. 


APPENDIX  V 

FEDERAL  TRADE  COMMISSION  LAWi 

An  Act  To  create  a  Federal  Trade  Commission,  to  define  its 
powers  and  duties,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assembled,  That 
a  commission  is  hereby  created  and  established,  to  be  known 
as  the  Federal  Trade  Commission  (hereinafter  referred  to  as 
the  commission),  which  shall  be  composed  of  five  commis- 
sioners, who  shall  be  appointed  by  the  President,  by  and  with 
the  advice  and  consent  of  the  Senate.  Not  more  than  three  of 
the  commissioners  shall  be  members  of  the  same  political  party. 
The  first  commissioners  appointed  shall  continue  in  office  for 
terms  of  three,  four,  five,  six,  and  seven  years,  respectively, 
from  the  date  of  the  taking  effect  of  this  Act,  the  term  of  each 
to  be  designated  by  the  President,  but  their  successors  shall 
be  appointed  for  terms  of  seven  years,  except  that  any  per- 
son chosen  to  fill  a  vacancy  shall  be  appointed  only  for  the 
unexpired  term  of  the  commissioner  whom  he  shall  succeed. 
The  commission  shall  choose  a  chairman  from  its  own  mem- 
bership. No  commissioner  shall  engage  in  any  other  business, 
vocation,  or  employment.  Any  commissioner  may  be  removed 
by  the  President  for  inefficiency,  neglect  of  duty,  or  malfeas- 
ance in  office.  A  vacancy  in  the  commission  shall  not  impair 
the  right  of  the  remaining  commissioners  to  exercise  all  the 
powers  of  the  commission. 

The  commission  shall  have  an  official  seal,  which  shall  be 
judicially  noticed. 

Sec.  2.  That  each  commissioner  shall  receive  a  salary  of 
$10,000  a  year,  payable  in  the  same  manner  as  the  salaries  of 
the  judges  of  the  courts  of'  the  United  States.    The  commis- 

1  First  members  of  Federal  Trade  Commission :  Joseph  E.  Davies, 
Chairman,  Edward  N.  Hurley  of  Illinois,  William  J.  Harris  of  Wash- 
ington, D.  C,  William  H.  Parry  of  Washington,  George  Rublee  of 
New  Hampshire. 

397 


398  THE  NEW  COMPETITION 

sion  shall  appoint  a  secretary,  who  shall  receive  a  salary  of 
$5,000  a  year,  payable  in  like  manner,  and  it  shall  have  author- 
ity to  employ  and  fix  the  compensation  of  such  attorneys,  spe- 
cial experts,  examiners,  clerks,  and  other  employees  as  it  may 
from  time  to  time  find  necessary  for  the  proper  performance 
of  its  duties  and  as  may  be  from  time  to  time  appropriated  for 
by  Congress. 

With  the  exception  of  the  secretary,  a  clerk  to  each  com- 
missioner, the  attorneys,  and  such  special  experts  and  exam- 
iners as  the  commission  may  from  time  to  time  find  necessary 
for  the  conduct  of  its  work,  all  employees  of  the  commission 
shall  be  a  part  of  the  classified  civil  service,  and  shall  enter 
the  service  under  such  rules  and  regulations  as  may  be  pre- 
scribed by  the  commission  and  by  the  Civil  Service  Com- 
mission. 

All  of  the  expenses  of  the  commission,  including  all  neces- 
sary expenses  for  transportation  incurred  by  the  commis- 
sioner^ or  by  their  employees  under  their  orders,  in  making 
any  investigation,  or  upon  official  business  in  any  other  places 
than  in  the  city  of  Washington,  shall  be  allowed  and  paid  on 
the  presentation  of  itemized  vouchers  therefor  approved  by 
the  commission. 

Until  otherwise  provided  by  law,  the  commission  may  rent 
suitable  offices  for  its  use. 

The  Auditor  for  the  State  and  Other  Departments  shall 
receive  and  examine  all  accounts  of  expenditures  of  the  com- 
mission. 

Sec.  3.  That  upon  the  organization  of  the  commission 
and  election  of  its  chairman,  the  Bureau  of  Corporations  and 
the  offices  of  Commissioner  and  Deputy  Commissioner  of  Cor- 
porations shall  cease  to  exist;  and  all  pending  investigations 
and  proceedings  of  the  Bureau  of  Corporations  shall  be  con- 
tinued by  the  commission. 

All  clerks  and  employees  of  the  said  bureau  shall  be  trans- 
ferred to  and  become  clerks  and  employees  of  the  commis- 
sion at  their  present  grades  and  salaries.  All  records,  papers, 
and  property  of  the  said  bureau  shall  become  records,  papers, 
and  property  of  the  commission,  and  all  unexpended  funds 
and  appropriations  for  the  use  and  maintenance  of  the  said 
bureau,  including  any  allotment  already  made  to  it  by  the 
Secretary  of  Commerce  from  the  contingent  appropriation 
for  the  Department  of  Commerce  for  the  fiscal  year  nineteen 
hundred  and  fifteen,  or  from  the  departmental  printing  fund 
for  the  fiscal  year  nineteen  hundred  and  fifteen,  shall  become 
funds  and  appropriations  available  to  be  expended  by  the  com  • 


TRADE  COMMISSION  LAW  399 

mission  in  the  exercise  of  the  powers,  authority,  and  duties 
conferred  on  it  by  this  Act. 

The  principal  office  of  the  commission  shall  be  in  the  city 
of  Washington,  but  it  may  meet  and  exercise  all  its  powers  at 
any  other  place.  The  commission  may,  by  one  or  more  of  its 
members,  or  by  such  examiners  as  it  may  designate,  prosecute 
any  inquiry  necessary  to  its  duties  in  any  part  of  the  United 
States. 

Sec.  4.  That  the  words  defined  in  this  section  shall  have 
the  following  meaning  when  found  in  this  Act,  to  wit : 

"Commerce"  means  commerce  among  the  several  States 
or  with  foreign  nations,  or  in  any  Territory  of  the  United 
States  or  in  the  District  of  Columbia,  or  between  any  such 
Territory  and  another,  or  between  any  such  Territory  and  any 
State  or  foreign  nation,  or  between  the  District  of  Columbia 
and  any  State  or  Territory  or  foreign  nation. 

"Corporation"  means  any  company  or  association  incor- 
porated or  unincorporated,  which  is  organized  to  carry  on 
business  for  profit  and  has  shares  of  capital  or  capital  stock, 
and  any  company  or  association,  incorporated  or  unincorpo- 
rated, without  shares  of  capital  or  capital  stock,  except  part- 
nerships, which  is  organized  to  carry  on  business  for  its  own 
profit  or  that  of  its  members. 

"Documentary  evidence"  means  all  documents,  papers  and 
correspondence  in  existence  at  and  after  the  passage  of  this 
Act. 

"Acts  to  regulate  commerce'*  means  the  Act  entitled  "An 
Act  to  regulate  commerce,"  approved  February  fourteenth, 
eighteen  hundred  and  eighty-seven,  and  all  Acts  amendatory 
thereof  and  supplementary  thereto. 

"Antitrust  acts"  means  the  Act  entitled  "An  Act  to  pro- 
tect trade  and  commerce  against  unlawful  restraints  and 
monopolies,"  approved  July  second,  eighteen  hundred  and 
ninety ;  also  the  sections  seventy-three  to  seventy-seven,  inclu- 
sive, of  an  Act  entitled  "An  Act  to  reduce  taxation,  to  provide 
revenue  for  the  Government,  and  for  other  purposes,"  ap- 
proved August  twenty-seventh,  eighteen  hundred  and  ninety- 
four  ;  and  also  the  Act  entitled  "An  Act  to  amend  sections  sev- 
enty-three and  seventy-six  of  the  Act  of  August  twenty- 
seventh,  eighteen  hundred  and  ninety- four,  entitled  *An  Act 
to  reduce  taxation,  to  provide  revenue  for  the  Government, 
and  for  other  purposes,' "  approved  February  twelfth,  nine- 
teen hundred  and  thirteen. 

Sec.  5.  That  unfair  methods  of  competition  in  commerce 
are  hereby  declared  unlawful. 


400  THE  NEW  COMPETITION 

The  commission  is  hereby  empowered  and  directed  to  pre- 
vent persons,  partnerships,  or  corporations,  except  banks,  and 
common  carriers  subject  to  the  Acts  to  regulate  commerce, 
from  using  unfair  methods  of  competition  in  commerce. 

These  two  paragraphs  are  the  most  important  provisions 
of  the  law. 

The  use  of  the  word  prevent  in  the  second  paragraph  is 
significant,  in  that  it  would  seem  to  give  the  Commission 
authority  to  consider  plans  of  cooperation  and  proposed  com- 
petitive practices  prior  to  any  overt  act,  and  either  approve  or 
condemn.  It  might  not  have  been  the  intent  of  Congress  to 
vest  in  the  Commission  this  power,  but  it  is  needless  to  say  that 
if  unfair  methods  of  competition  are  to  be  prevented  they 
must  be  considered  in  advance  of  their  use,  otherwise  they  are 
simply  condemned. 

Prior  to  the  enactment  of  this  law  Unfair  Competition 
had  a  more  or  less  technical  and  limited  meaning;  it  has  been 
defined  as  follows : 

**Unfair  competition  consists  essentially  in  the  conduct  of 
a  trade  or  business  in  such  a  manner  that  there  is  an  express 
or  implied  representation  that  the  goods  or  business  of  one 
man  are  the  goods  or  business  of  another.  This  is  a  legal 
wrong  for  which  the  courts  will  afford  a  remedy.  The  remedy 
proceeds  upon  the  theory  that  the  reputation  and  good  will 
which  a  man  acquires  in  business  are  property,  and  as  such 
entitled  to  protection  against  invasion,  and  also  in  part  upon 
the  theory  of  protection  to  the  public  against  fraud.  It  may 
be  likened  to  the  case  of  a  wrong  against  the  public  resulting 
in  special  damage  to  an  individual."  ^ 

The  new  law  is  much  broader  in  its  application,  and  com- 
petitive methods  which  the  courts  have  heretofore  been  power- 
less to  reach  will  now  be  investigated  and  exposed  by  the 
Commission. 

The  business  world  is  naturally  in  great  doubt  as  to  the 
scope  and  meaning  of  this  new  law.  Considerable  light  may 
be  gained  by  reading  chapter  V. 

Happily  Chairman  Davies  of  the  Commission,  while  Chair- 

lAra.  &  Eng.  Ency.  of  Law  (2nd  Ed),  Vol  28,  p.  34^ 


TRADE  COMMISSION  LAW  401 

man  of  the  Bureau  of  Corporations,  realizing  the  necessity  of 
some  source  of  information,  compiled  a  volume  which  will 
shortly  appear.  In  his  letter  to  the  President,  speaking  of  the 
scope  of  the  volume  he  said:  "Among  the  chief  subjects  dis- 
cussed are  federal  anti-trust  legislation,  the  judicial  decisions 
thereunder,  and  the  influence  of  such  legislation  on  forms  of 
business  organization,  the  anti-trust  laws  of  the  several  states, 
the  legislation  of  foreign  countries  with  regard  to  combina- 
tions, and  the  laws  and  judicial  decisions  in  the  United  States 
and  various  foreign  countries  with  regard  to  unfair  or  unlaw- 
ful competition." 

And  regarding  the  meaning  of  unfair  methods  of  compe- 
tition he  says :  "This  report  shows  what  practices  have  gen- 
erally been  regarded  as  unfair  methods  of  competition  by  busi- 
ness men,  economic  writers,  and  public  men  in  the  United 
States,  and  also  what  practices  have  been  characterized  as 
such  by  the  Department  of  Justice  or  by  the  courts  in  the 
administration  of  the  anti-trust  laws.  Furthermore,  it  shows 
various  competitive  practices  which  at  common  law  the  courts 
have  termed  unfair  competition,  or  which  they  have  held  could 
not  be  justified.  These  decisions  give  a  much  wider  scope  to 
the  term  than  has  been  generally  recognized.  In  presenting 
this  information,  however,  it  is  not  intended,  in  this  report,  to 
limit  or  define  the  term  unfair  methods  of  competition. 

"A  broad  survey  is  also  made  of  legislation  on  the  sub- 
ject of  unfair  competition  in  the  chief  European  countries  with 
some  illustrations  of  the  applications  of  these  laws  in  the  juris- 
prudence of  the  respective  countries.  In  some  countries  reli- 
ance is  chiefly  placed  on  general  provisions  of  the  civil  codes, 
while  other  countries  have  elaborate  special  laws  prohibiting 
particular  practices.  The  present  tendency  is  to  combine  both 
of  these  systems.  In  most  foreign  countries  the  basic  idea  of 
unfair  competition  is  an  act  which  unjustly  injures  a  com- 
petitor and  comparatively  little  consideration  is  given  to  the 
question  of  the  effects  on  the  general  public.*' 

It  is  to  be  hoped  that  when  the  work  in  its  complete  state 
is  issued.  Chairman  Davies  will  cause  to  be  printed  in  pamphlet 
form  a  condensed  statement  of  the  competitive  methods  which 


402  THE  NEW  COMPETITION 

have  been  held  or  charged  to  be  unfair.    Such  a  compilation 
would  prove  a  most  useful  manual  of  business  ethics. 

Whenever  the  commission  shall  have  reason  to  believe  that 
any  such  person,  partnership,  or  corporation  has  been  or  is 
using  any  unfair  method  of  competition  in  commerce,  and  if 
it  shall  appear  to  the  commission  that  a  proceeding  by  it  in 
respect  thereof  would  be  to  the  interest  of  the  pubHc,  it  shall 
issue  and  serve  upon  such  person,  partnership,  or  corporation 
a  complaint  stating  its  charges  in  that  respect,  and  containing 
a  notice  of  a  hearing  upon  a  day  and  at  a  place  therein  fixed 
at  least  thirty  days  after  the  service  of  said  complaint.  The 
person,  partnership,  or  corporation  so  complained  of  shall  have 
the  right  to  appear  at  the  place  and  time  so  fixed  and  show 
cause  why  an  order  should  not  be  entered  by  the  commission 
requiring  such  person,  partnership,  or  corporation  to  cease 
and  desist  from  the  violation  of  the  law  so  charged  in  said 
complaint.  Any  person,  partnership,  or  corporation  may  make 
application,  and  upon  good  cause  shown  may  be  allowed  by 
the  commission,  to  intervene  and  appear  in  said  proceeding  by 
counsel  or  in  person.  The  testimony  in  any  such  proceeding 
shall  be  reduced  to  writing  and  filed  in  the  office  of  the  com- 
mission. If  upon  such  hearing  the  commission  shall  be  of  the 
opinion  that  the  method  of  competition  in  question  is  prohibited 
by  this  Act,  it  shall  make  a  report  in  writing  in  which  it  shall 
state  its  findings  as  to  the  facts,  and  shall  issue  and  cause  to 
be  served  on  such  person,  partnership,  or  corporation  an  order 
requiring  such  person,  partnership,  or  corporation  to  cease  and 
desist  from  using  such  method  of  competition.  Until  a  tran- 
script of  the  record  in  such  hearing  shall  have  been  filed  in  a 
circuit  court  of  appeals  of  the  United  States,  as  hereinafter 
provided,  the  commission  may  at  any  time,  upon  such  notice 
and  in  such  manner  as  it  shall  deem  proper,  modify  or  set 
aside,  in  whole  or  in  part,  any  report  or  any  order  made  or 
issued  by  it  under  this  section. 

If  such  person,  partnership,  or  corporation  fails  or  neglects 
to  obey  such  order  of  the  commission  while  the  same  is  in 
effect,  the  commission  may  apply  to  the  circuit  court  of  appeals 
of  the  United  States,  within  any  circuit  where  the  method  of 
competition  in  question  was  used  or  where  such  person,  part- 
nership, or  corporation  resides  or  carries  on  business,  for  the 
enforcement  of  its  order,  and  shall  certify  and  file  with  its 
application  a  transcript  of  the  entire  record  in  the  proceed- 
ing, including  all  the  testimony  taken  and  the  report  and  order 
of  the  commission.    Upon  such  filing  of  the  application  and 


TRADE  COMMISSION  LAW  403 

transcript  the  court  shall  cause  notice  thereof  to  be  served  upon 
such  person,  partnership,  or  corporation  and  thereupon  shall 
have  jurisdiction  of  the  proceeding  and  of  the  question  deter- 
mined therein,  and  shall  have  power  to  make  and  enter  upon 
the  pleadings,  testimony,  and  proceedings  set  forth  in  such 
transcript  a  decree  affirming,  modifying,  or  setting  aside  the 
order  of  the  commission.  The  findings  of  the  commission  as 
to  the  facts,  if  supported  by  testimony,  shall  be  conclusive. 
If  either  party  shall  apply  to  the  court  for  leave  to  adduce 
additional  evidence,  and  shall  show  to  the  satisfaction  of  the 
court  that  such  additional  evidence  is  material  and  that  there 
were  reasonable  grounds  for  the  failure  to  adduce  such  evi- 
dence in  the  proceeding  before  the  commission,  the  court  may 
order  such  additional  evidence  to  be  taken  before  the  commis- 
sion and  to  be  adduced  upon  the  hearing  in  such  manner  and 
upon  such  terms  and  conditions  as  to  the  court  may  seem 
proper.  The  commission  may  modify  its  findings  as  to  the 
facts,  or  make  new  findings,  by  reason  of  the  additional  evi- 
dence so  taken,  and  it  shall  file  such  modified  or  new  findings, 
which,  if  supported  by  testimony,  shall  be  conclusive,  and  its 
recommendation,  if  any,  for  the  modification  or  setting  aside 
of  its  original  order,  with  the  return  of  such  additional  evi- 
dence. The  judgment  and  decree  of  the  court  shall  be  final, 
except  that  the  same  shall  be  subject  to  review  by  the  Supreme 
Court  upon  certiorari  as  provided  in  section  two  hundred  and 
forty  of  the  Judicial  Code. 

Any  party  required  by  such  order  of  the  commission  to 
cease  and  desist  from  using  such  method  of  competition  may 
obtain  a  review  of  such  order  in  said  circuit  court  of  appeals 
by  filing  in  the  court  a  written  petition  praying  that  the  order 
of  the  commission  be  set  aside.  A  copy  of  such  petition  shall 
be  forthwith  served  upon  the  commission,  and  thereupon  the 
commission  forthwith  shall  certify  and  file  in  the  court  a 
transcript  of  the  record  as  hereinbefore  provided.  Upon  the 
filing  of  the  transcript  the  court  shall  have  the  same  jurisdic- 
tion to  affirm,  set  aside,  or  modify  the  order  of  the  commis- 
sion as  in  the  case  of  an  application  by  the  commission  for  the 
enforcement  of  its  order,  and  the  findings  of  the  commission 
as  to  the  facts,  if  supported  by  testimony,  shall  in  like  manner 
be  conclusive. 

The  jurisdiction  of  the  circuit  court  of  appeals  of  the 
United  States  to  enforce,  set  aside,  or  modify  orders  of  the 
commission  shall  be  exclusive. 

Such  proceedings  in  the  circuit  court  of  appeals  shall  be 
given  precedence  over  other  cases  pending  therein,  and  shall 


404  THE  NEW  COMPETITION 

be  in  every  way  expedited.  No  order  of  the  commission  or 
judgment  of  the  court  to  enforce  the  same  shall  in  any  wise 
relieve  or  absolve  any  person,  partnership,  or  corporation  from 
any  liability  under  the  antitrust  acts. 

Complaints,  orders,  and  other  processes  of  the  commission 
under  this  section  may  be  served  by  anyone  duly  authorized 
by  the  commission,  either  (a)  by  delivering  a  copy  thereof  to 
the  person  to  be  served,  or  to  a  member  of  the  partnership  to 
be  served,  or  to  the  president,  secretary,  or  other  executive 
officer  or  a  director  of  the  corporation  to  be  served ;  or  (b)  by 
leaving  a  copy  thereof  at  the  principal  office  or  place  of  busi- 
ness of  such  person,  partnership,  or  corporation;  or  (c)  by 
registering  and  mailing  a  copy  thereof  addressed  to  such  per- 
son, partnership,  or  corporation  at  his  or  its  principal  office 
or  place  of  business.  The  verified  return  by  the  person  so 
serving  said  complaint,  order,  or  other  process  setting  forth 
the  manner  of  said  service  shall  be  proof  of  the  same,  and  the 
return  post-office  receipt  for  said  complaint,  order,  or  other 
process  registered  and  mailed  as  aforesaid  shall  be  proof  of 
the  service  of  the  same. 

Sec.  6.     That  the  commission  shall  also  have  power — 

(a)  To  gather  and  compile  information  concerning,  and 
to  investigate  from  time  to  time  the  organization,  business, 
conduct,  practices,  and  management  of  any  corporation  en- 
gaged in  commerce,  excepting  banks  and  common  carriers  sub- 
ject to  the  Act  to  regulate  commerce,  and  its  relation  to  other 
corporations  and  to  individuals,  associations,  and  partnerships. 

(b)  To  require,  by  general  or  special  orders,  corporations 
engaged  in  commerce,  excepting  banks,  and  common  carriers 
subject  to  the  Act  to  regulate  commerce,  or  any  class  of  them, 
or  any  of  them,  respectively,  to  file  with  the  commission  in  such 
form  as  the  commission  may  prescribe  annual  or  special,  or  both 
annual  and  special,  reports  or  answers  in  writing  to  specific 
questions,  furnishing  to  the  commission  such  information 
as  it  may  require  as  to  the  organization,  business,  conduct, 
practice,  management,  and  relation  to  other  corporations, 
partnerships,  and  individuals  of  the  respective  corpora- 
tions filing  such  reports  or  answers  in  writing.  Such  reports 
and  answers  shall  be  made  under  oath,  or  otherwise,  as  the 
commission  may  prescribe,  and  shall  be  filed  with  the  com- 
mission within  such  reasonable  period  as  the  commission  may 
prescribe,  unless  additional  time  be  granted  in  any  case  by  the 
commission. 

(c)  Whenever  a  final  decree  has  been  entered  against  any 
defendant  corporation  in  any  suit  brought  by  the  United  States 


TRADE  COMMISSION  LAW  405 

to  prevent  and  restrain  any  violation  of  the  antitrust  Acts,  to 
make  investigation,  upon  its  own  initiative,  of  the  manner  in 
which  the  decree  has  been  or  is  being  carried  out,  and  upon 
the  appHcation  of  the  Attorney  General  it  shall  be  its  duty  to 
make  such  investigation.  It  shall  transmit  to  the  Attorney 
General  a  report  embodying  its  findings  and  recommendations 
as  a  result  of  any  such  investigation,  and  the  report  shall  be 
made  public  in  the  discretion  of  the  commission. 

(d)  Upon  the  direction  of  the  President  or  either  House 
of  Congress  to  investigate  and  report  the  facts  relating  to  any 
alleged  violations  of  the  antitrust  Acts  by  any  corporation. 

(e)  Upon  the  application  of  the  Attorney  General  to  in- 
vestigate and  make  recommendations  for  the  readjustment  of 
the  business  of  any  corporation  alleged  to  be  violating  the 
antitrust  Acts  in  order  that  the  corporation  may  thereafter 
maintain  its  organization,  management,  and  conduct  of  busi- 
ness in  accordance  with  law. 

(f )  To  make  public  from  time  to  time  such  portions  of  the 
information  obtained  by  it  hereunder,  except  trade  secrets  and 
names  of  customers,  as  it  shall  deem  expedient  in  the  public 
interest;  and  to  make  annual  and  special  reports  to  the  Con- 
gress and  to  submit  therewith  recommendations  for  additional 
legislation ;  and  to  provide  for  the  publication  of  its  reoprts 
and  decisions  in  such  form  and  manner  as  may  be  best  adapted 
for  public  information  and  use. 

(g)  From  time  to  time  to  classify  corporations  and  to  make 
rules  and  regulations  for  the  purpose  of  carrying  out  the  pro- 
visions of  this  Act. 

(h)  To  investigate,  from  time  to  time,  trade  conditions  in 
and  with  foreign  countries  where  associations,  combinations, 
or  practices  of  manufacturers,  merchants,  or  traders,  or  other 
conditions,  may  affect  the  foreign  trade  of  the  United  States, 
and  to  report  to  Congress  thereon,  with  such  recommendations 
as  it  deems  advisable. 

Sec.  7.  That  in  any  suit  in  equity  brought  by  or  under  the 
direction  of  the  Attorney  General  as  provided  in  the  antitrust 
Acts,  the  court  may,  upon  the  conclusion  of  the  testimony 
therein,  if  it  shall  be  then  of  opinion  that  the  complainant 
is  entitled  to  relief,  refer  said  suit  to  the  commission,  as  a 
master  in  chancery  to  ascertain  and  report  an  appropriate 
form  of  decree  therein.  The  commission  shall  proceed  upon 
such  notice  to  the  parties  and  under  such  rules  of  procedure 
as  the  court  may  prescribe,  and  upon  the  coming  in  of  such 
report  such  exceptions  may  be  filed  and  such  proceedings  had 
in  relation  thereto  as  upon  the  report  of  a  master  in  other 


4o6  THE  NEW  COMPETITION 

equity  causes,  but  the  court  may  adopt  or  reject  such  report, 
in  whole  or  in  part,  and  enter  such  decree  as  the  nature  of  the 
case  may  in  its  judgment  require. 

Sec.  8.  That  the  several  departments  and  bureaus  of  the 
Government  when  directed  by  the  President  shall  furnish  the 
commission,  upon  its  request,  all  records,  papers,  and  informa- 
tion in  their  possession  relating  to  any  corporation  subject  to 
any  of  the  provisions  of  this  Act,  and  shall  detail  from  time 
to  time  such  officials  and  employees  to  the  commission  as  he 
may  direct. 

Sec.  9.  That  for  the  purposes  of  this  Act  the  commission, 
or  its  duly  authorized  agent  or  agents,  shall  at  all  reasonable 
times  have  access  to,  for  the  purpose  of  examination,  and  the 
right  to  copy  any  documentary  evidence  of  any  corporation 
being  investigated  or  proceeded  against;  and  the  commission 
shall  have  power  to  require  by  subpoena  the  attendance  and 
testimony  of  witnesses  and  the  production  of  all  such  docu- 
mentary evidence  relating  to  any  matter  under  investigation. 
Any  member  of  the  commission  may  sign  subpoenas,  and  mem- 
bers and  examiners  of  the  commission  may  administer  oaths 
and  affirmations,  examine  witnesses,  and  receive  evidence. 

Such  attendance  of  witnesses,  and  the  production  of  such 
documentary  evidence,  may  be  required  from  any  place  in  the 
United  States,  at  any  designated  place  of  hearing.  And  in 
case  of  disobedience  to  a  subpoena  the  commission  may  invoke 
the  aid  of  any  court  of  the  United  States  in  requiring  the  at- 
tendance and  testimony  of  witnesses  and  the  production  of 
documentary  evidence. 

Any  of  the  district  courts  of  the  United  States  within  the 
jurisdiction  of  which  such  inquiry  is  carried  or  may,  in  case 
of  contumacy  or  refusal  to  obey  a  subpoena  issued  to  any  cor- 
poration or  other  person,  issue  an  order  requiring  such  cor- 
poration or  other  person  to  appear  before  the  commission,  or 
to  produce  documentary  evidence  if  so  ordered,  or  to  give 
evidence  touching  the  matter  in  question;  and  any  failure  to 
obey  such  order  of  the  court  may  be  punished  by  such  court 
as  a  contempt  thereof. 

Upon  the  application  of  the  Attorney  General  of  the  United 
States,  at  the  request  of  the  commission,  the  district  courts  of 
the  United  States  shall  have  jurisdiction  to  issue  writs  of 
mandamus  commanding  any  person  or  corporation  to  comply 
with  the  provisions  of  this  Act  or  any  order  of  the  commis- 
sion made  in  pursuance  thereof. 

The  commission  may  order  testimony  to  be  taken  by  depo- 
sition in  any  proceeding  or  investigation  pending  under  this 


TRADE  COMMISSION  LAW  407 

Act  at  any  stage  of  such  proceeding  or  investigation.  Such 
depositions  may  be  taken  before  any  person  designated  by  the 
commission  and  having  power  to  administer  oaths.  Such  tes* 
timony  shall  be  reduced  to  writing  by  the  person  taking  the 
deposition,  or  under  his  direction,  and  shall  then  be  subscribed 
by  the  deponent.  Any  person  may  be  compelled  to  appear  and 
depose  and  to  produce  documentary  evidence  in  the  same  man- 
ner as  witnesses  may  be  compelled  to  appear  and  testify  and 
produce  documentary  evidence  before  the  commission  as  here- 
inbefore provided. 

Witnesses  summoned  before  the  commission  shall  be  paid 
the  same  fees  and  mileage  that  are  paid  witnesses  in  the  courts 
of  the  United  States,  and  witnesses  whose  depositions  are  taken 
and  the  persons  taking  the  same  shall  severally  be  entitled  to 
the  same  fees  as  are  paid  for  like  services  in  the  courts  of  the 
United  States. 

No  person  shall  be  excused  from  attending  and  testifying 
or  from  producing  documentary  evidence  before  the  commis- 
sion or  in  obedience  to  the  subpoena  of  the  commission  on  the 
ground  or  for  the  reason  that  the  testimony  or  evidence,  docu- 
mentary or  otherwise,  required  of  him  may  tend  to  criminate 
him  or  subject  him  to  a  penalty  or  forfeiture.  But  no  natural 
person  shall  be  prosecuted  or  subjected  to  any  penalty  or  for- 
feiture for  or  on  account  of  any  transaction,  matter,  or  thing 
concerning  which  he  may  testify,  or  produce  evidence,  docu- 
mentary or  otherwise,  before  the  commission  in  obedience  to  a 
subpoena  issued  by  it:  Provided,  That  no  natural  person  so 
testifying  shall  be  exempt  from  prosecution  and  punishment 
for  perjury  committed  in  so  testifying. 

Sec.  10.  That  any  person  who  shall  neglect  or  refuse  to 
attend  and  testify,  or  to  answer  any  lawful  inquiry,  or  to  pro- 
duce documentary  evidence,  if  in  his  power  to  do  so,  in  obedi- 
ence to  the  subpoena  or  lawful  requirement  of  the  commission, 
shall  be  guilty  of  an  offense  and  upon  conviction  thereof  by  a 
court  of  competent  jurisdiction  shall  be  punished  by  a  fine  of 
not  less  than  $1,000  nor  more  than  $5,000,  or  by  imprisonment 
for  not  more  than  one  year,  or  by  both  such  fine  and  impris- 
onment. 

Any  person  who  shall  willfully  make,  or  cause  to  be  made, 
any  false  entry  or  statement  of  fact  in  any  report  required  to 
be  made  under  this  Act,  or  who  shall  willfully  make,  or  cause 
to  be  made,  any  false  entry  in  any  account,  record,  or  memo- 
randum kept  by  any  corporation  subject  to  this  Act,  or  who 
shall  willfully  neglect  or  fail  to  make,  or  to  cause  to  be  made, 
full,  true,  and  correct  entries  in  such  accounts,  records,  or 


4o8  THE  NEW  COMPETITION 

memoranda  of  all  facts  and  transactions  appertaining  to  the 
business  of  such  corporation,  or  who  shall  willfully  remove 
out  of  the  jurisdiction  of  the  United  States,  or  willfully  muti- 
late, alter,  or  by  any  other  means  falsify  any  documentary 
evidence  of  such  corporation,  or  who  shall  willfully  refuse  to 
submit  to  the  commission  or  to  any  of  its  authorized  agents, 
for  the  purpose  of  inspection  and  taking  copies,  any  documen- 
tary evidence  of  such  corporation  in  his  possession  or  within 
his  control,  shall  be  deemed  guilty  of  an  offense  against  the 
United  States,  and  shall  be  subject,  upon  conviction  in  any 
court  of  the  United  States  of  competent  jurisdiction,  to  a  fine 
of  not  less  than  $i,ooo  nor  more  than  $5,000,  or  to  imprison- 
ment for  a  term  of  not  more  than  three  years,  or  to  both  such 
fine  and  imprisonment. 

If  any  corporation  required  by  this  Act  to  file  any  annual 
or  special  report  shall  fail  so  to  do  within  the  time  fixed  by 
the  commission  for  filing  the  same,  and  such  failure  shall  con- 
tinue for  thirty  days  after  notice  of  such  default,  the  corpora- 
tion shall  forfeit  to  the  United  States  the  sum  of  $100  for  each 
and  every  day  of  the  continuance  of  such  failure,  which  for- 
feiture shall  be  payable  into  the  Treasury  of  the  United  States, 
and  shall  be  recoverable  in  a  civil  suit  in  the  name  of  the 
United  States  brought  in  the  district  where  the  corporation 
has  its  principal  office  or  in  any  district  in  which  it  shall  do 
business.  It  shall  be  the  duty  of  the  various  district  attor- 
neys, under  the  direction  of  the  Attorney  General  of  the 
United  States,  to  prosecute  for  the  recovery  of  forfeitures. 
The  costs  and  expenses  of  such  prosecution  shall  be  paid  out 
of  the  appropriation  for  the  expenses  of  the  courts  of  the 
United  States. 

Any  officer  or  employee  of  the  commission  who  shall  make 
public  any  information  obtained  by  the  commission  without 
its  authority,  unless  directed  by  a  court,  shall  be  deemed  guilty 
of  a  misdemeanor,  and,  upon  conviction  thereof,  shall  be  pun- 
ished by  a  fine  not  exceeding  $5,000,  or  by  imprisonment  not 
exceeding  one  year,  or  by  fine  and  imprisonment,  in  the  discre- 
tion of  the  court. 

Sec.  II.  Nothing  contained  in  this  Act  shall  be  construed 
to  prevent  or  interfere  with  the  enforcement  of  the  provisions 
of  the  antitrust  Acts  or  the  Acts  to  regulate  commerce,  nor 
shall  anything  contained  in  the  Act  be  construed  to  alter, 
modify,  or  repeal  the  said  antitrust  Acts  or  the  Acts  to  regulate 
commerce  or  any  part  or  parts  thereof. 

Approved,  September  26,  1914. 


INDEX 


Accounting,  uniform  system  of, 

recommended,    354. 
Esthetic  efforts,  43. 
Aggregation  of  labor  discussed, 

298. 
Alexander,  42. 
Almond     Growers'     Exchange, 

SSI- 
Altruism  and  generosity  found- 
ed on  cooperation,  29. 
Amalgamated  Association  of  I. 
&     S.     workers     opposed    to 
shorter  hours,  169  note. 
American    Society    of    Equity, 

36  note. 
American   Sugar   Refining   Co., 

46. 

American  Federation  of  Labor, 

323- 

Anarchism  and  certain  trade 
maxims,  212. 

Anarchist  in  trade,  121. 

Annihilation,  competition  and 
struggle  for,  20. 

Anti-trust  laws,  see  Trusts; 
amendments  to,  proposed, 
36;  contrary  to  spirit  of  age, 
47;  drawn  along  the  lines  of 
least  resistance,  352;  not  en- 
forced against  certain  classes, 
329,  346;  theory  of,  205. 

Association,  see  Open-price 
association. 


Associations,  certain  meetings 
of,  not  illegal,  124;  indirect 
agreements  of,  124;  meetings 
of,  for  luncheon,  123;  of  rail- 
road employes  and  shippers 
suggested,  316;  under  pro- 
posed Federal  Law,  356. 

Balance  of  trade,  42. 

Baldwin,  Prof.  James  Mark, 
20. 

Bargain  days,  57. 

Beauty  not  a  wholesale  propo- 
sition, 43. 

Beyer,  David  S.,  165  note. 

Bids,  calling  for,  with  no  in- 
tention to  let  to  lowest,  196; 
false  representations  concern- 
ing, 199;  method  of  govern- 
ment purchases  and  contracts 
on,  criticized,  228. 

Biological  competition,  11,  21. 

Black  list,  use  of,  56,  355. 

Bricklayers  and  Masons'  In- 
ternational, 323. 

Broom-corn  combination,  37 
note. 

Brutal  buying,  see  Buying; 
government  purchases  and, 
228. 

Brutal  competition,  see  Com- 
petitiokt^  brutal. 


409 


4IO 


INDEX 


Burley     Tobacco     Society,    37 

note. 
Burton,    Senator   Theodore   E., 

63  note. 
Business,    a   lottery,    192;    re- 
ducing   the    speculative    ele- 
ments of,  224. 
Buyers,    all    men    both    buyers 
and   sellers,  52;   secret   price 
policy  and,   112;  sellers  and, 
most     men     both,     33;     two 
classes    of,    215;    who    have 
fixed  incomes,  37;  open-price 
association  of,   153. 
Buying,  brutal,   190. 
Buyers*  open-price  associations, 

153-155. 
Caesar,  42. 

California  and  oriental  labor,  5. 
Calwer,  Richard,  370. 
Canada,  conditions  in,  359. 
Capital  and  labor,   conflict  be- 
tween,   4;     misuse    of    term 
capital,  336. 
Capitalists,      combinations     of, 
and  politicians  and  judges,  9. 
Carnegie,  Andrew,   168. 
Carnegie  Company,   104 
Carpenters,  association  of,  105. 
Cartels   in   Germany,  368. 
Census     statistics     inadequate, 

168. 
City  of  London  case,  7. 
Clark,  Prof.  John  B.,  The  Con- 
trol of  Trusts,  14. 
Class  discrimination  by  indirect 

methods,  329. 
Class    legislation    and    fair 
play,  328;  no  distinction  be- 
tween  combination  of  farm- 
ers and  labor  and  combina- 


tions of  manufacturers  and 
employers,  334;  unconstitu- 
tional, 328  note   I. 

Clayton  law,  80;  beneficial,  82; 
in  full,  378-396;  opposed  to 
Sherman  law,  82. 

Community  your  partner,  156. 

Coal  strikes,  results  of,  305 
note. 

Collier,  Wm.  M.,  50  note. 

Collusion,  effect  of,  98. 

Collusive  competition,  see 
Competition,  collusive. 

Colorado  Fruit  Growers'  Asso- 
ciation, 331. 

Combination,  line  of  normal,  in 
industries,  279. 

Combinations,  see  also 
Trusts;  and  pools  in  Eng- 
land and  Germany,  127;  and 
unfair  competition,  63;  con- 
flict between,  54;  forms  of, 
45;  fruit  growers',  54;  great 
era  of,  34;  here  to  stay,  10; 
inevitable,  35;  large  and 
friendless,  63;  marketing  or- 
ganizations, 54;  of  employ- 
ers, 53;  of  labor  and  farm- 
ers, 53;  of  railways,  53;  of 
sellers,  53 ;  old  line  and  open- 
price  associations,  147;  on  a 
selfish  basis,  54;  question  of 
mere  size,  349;  to  advance 
prices,  effect  of,  157;  which 
include  customers,  57. 

Commerce,  international  dump- 
ing of  goods,  261  note  i. 
Commonwealth  vs.   Strauss,  yj 
note. 

Community,  all  losses  unpro- 
ductive enterprises  borne  by, 


INDEX 


411 


252;  and  wasteful  competi- 
tion, I ;  attitude  of,  toward 
industries  and  men  who  are 
waiting  for  a  normal  de- 
mand, 262;  economic  organ- 
ization of,  wasteful,  256;  in- 
difference of,  towards  fail- 
ures, 265;  must  prevent 
strikes,  204;  should  control 
certain  so-called  economic 
laws,  249. 
Competition,  a  fetish,  2,  22;  a 
relentless  force,  1 1 ;  and  bar- 
baric conditions,  10;  and  its 
professed  friends,  80;  and 
labor  unions,  8;  and  politi- 
cians, 5;  and  secret  prices 
and  rebates,  loi ;  and  struggle 
for  annihilation,  20;  as  af- 
fected by  trusts,  51;  attitude 
of  labor  unions  towards,  2; 
attitude  of  the  public  towards, 
16;  attitude  of  socialists  to- 
wards, 3;  benefits  of,  27;  be- 
tween retail  merchants,  91 ; 
between  towns,  38;  biolog- 
ical, II;  blind,  vicious,  un- 
reasoning, 2;  blind  worship 
of,  26;  cause  of  distress,  7; 
collusive,  97;  competitive  or 
cooperative  basis  of,  35; 
contracts  to  prevent  un- 
healthy, 6;  cut  rate  drug 
stores  and,  31 ;  cutthroat,  31 ; 
death  of  trade,  i ;  definitions 
of,  19;  destructive,  29;  disap- 
pearance of  small  competitor 
in,  64;  disintegrating  force, 
26;  essence  of  the  old,  73; 
excessive,  6;  extensive,  40; 
in  products  of  the  soil,  sup- 


pressed, 9;  in  the  labor 
world,  89;  in  Tin  Plate  in- 
dustry, 208 ;  independent, 
against  an  integrated  indus- 
try, 282;  intensive,  40;  is  in- 
human, 1 1 ;  is  war  and  war 
is  hell,  23;  leads  to  combina- 
tions, 44;  life  of  trade,  i; 
line  of  normal,  in  industries, 
279;  lumber  companies  and, 
65;  mail  order  houses  and, 
31 ;  moral  and  economic 
rights  of,  65;  mother  of 
trusts,  50,  104;  nature's,  15; 
new,  court  decree  bearing 
upon,  69;  new,  interest  of 
third  party  and,  73;  new, 
versus  old,  62;  not  the  life 
of  trade,  7;  of  isolation,  5; 
old  fashioned,  285;  piratic, 
merciless,  cutthroat,  5;  pro- 
duction of  quantity  and,  44; 
real  and  beneficial,  86;  reck- 
less and  ignorant,  94;  rivals 
in  a  race,  85;  suppressed,  95, 
109;  suppressed,  and  fixed 
prices,  116;  suppressed,  gen- 
tlemen's agreements  and,  loi ; 
survival  of  the  fittest  and,  13 ; 
synonymous  with  struggle, 
contest,  rivalry,  21;  wasteful, 
and  the  community,  i ;  what 
is,  12;  when  buyers  would 
prefer  to  have  prices  fixed, 
99;  will  the  fittest  survive? 
32. 
Competition,  brutal,  59;  and 
Congress,  61 ;  and  size  of  a 
trust,  80;  and  vicious,  60; 
and  the  courts,  80;  between 
blacksmiths,  61 ;  instances  of. 


412 


INDEX 


64 ;  is  natural  and  instinc- 
tive, 61 ;  progress  toward 
higher  ideals,  62;  time  hon- 
ored practice,  59;  to  small 
competitor,   60. 

C0MPETITI0N,^,£ALSE,   85,  86,  95, 

97;  and  secrBt  prices,  ii6; 
basis  of,  secrecy,  105;  be- 
tween blacksmiths,  90;  be- 
tween carpenters,  87;  be- 
tween crane  builders,  92; 
bidding  in  the  dark  and,  93; 
in  the  contracting  and  manu- 
facturing world,  89;  oriental 
method  of,  11 1;  shoddy  and 
adulteration  logical  results 
of,  216;  wide  differences  in, 
bids  in,  93. 

Competition,  trtt^,  see  Open- 
PRICE  ASSOCIATIONS ;  and 
open  prices,  116;  as  com- 
pared with  old,  in  theory,  227 ; 
conditions  of,  87;  eliminates 
secrecy,  91 ;  factors  of,  dy, 
94;  helps  the  small  producer, 
114;  knowledge,  94;  prices 
more  nearly  alike  in,  89;  re- 
sults of,  109. 

Competition,  unfair,  32,  59; 
and  monopolies,  79;  between 
country  dealers,  60;  between 
jobbers  and  manufacturers, 
60;  between  peddlers,  60; 
by  integrated  industries, 
283;  business  methods  in, 
must  be  suppressed,  (^y,  353; 
decree  against,  68;  false 
statements  and  disburse- 
ments and,  56;  favored  cus- 
tomers in,  102;  goods  "just  as 
^uod"    in,   67;    law    in    Ger- 


many against,  372;  mail  or- 
der and  department  stores 
and,  60;  Massachusetts  law 
against,  76;  misrepresenta- 
tions in,  102;  practices  of  the 
individual  in,  must  be  sup- 
pressed, 351 ;  secret  prices 
and,  102;  under-selling  rivals 
and,  74. 

Conflicts  worldwide,  41. 

Congress  and  brutal  competi- 
tion, 61 ;  and  corporations, 
80. 

Consolidations,  52. 

Constitutional  law,  Massachu- 
setts, against  unfair  competi- 
tion, yd. 

Constitutionality  of  all  class 
legislation,  324  note. 

Consumer  interested  in  coop- 
eration, 54. 

Consumer,  the  ultimate,  218. 

Constructive  legislation,  347, 
350. 

Contest  and  competition,  21. 

Contractors  generally,  unfair 
practices  by,  195. 

Contracts,  constitutional  right 
to  make,  yy\  illustrating 
brutal  buying,  192;  in  re- 
straint of  trade,  33 ;  standard 
forms  a  provision,  201. 

Cooperation  and  buyers  and 
sellers,  53;  and  integration 
of  labor,  297;  and  over  ca- 
pacity, 261;  and  state  super- 
vision, 80;  basis  of  altruism, 
29;  basis  of  our  national  ex- 
istence, 24;  cannot  be  pro- 
hibited, 125;  constructive,  29; 
danger  is  towards  larger  and 


INDEX 


413 


larger,  345;  era  of,  5;  forms 
of,  45;  foundation  of  prog- 
ress, 18;  foundation  of  so- 
ciety, 24;  growth  of,  38;  is 
progress,  11,  24;  is  trade,  10; 
means  a  broader  outlook, 
157;  midway  between  selfish 
individualism  and  socialism, 
164;  more  of,  needed,  103;  of 
labor,  farmers  and  manufac- 
turers here  to  stay,  333;  pro- 
duction and  prices  and,  49; 
promoted  by  true  competi- 
tion, 30;  railway  associations 
and,  53;  rise  and  fall  of,  in 
history,  25 ;  sellers'  organiza- 
tions and,  53;  societies  for, 
urged  by  President  Taft, 
Colonel  Roosevelt,  37  note; 
suppressed  by  anti-trust  laws, 
28;  to  reduce  prices,  52;  to 
reduce  speculative  elements 
of  business,  214;  to  take  in 
consumer,  54. 

Corporations,  see  also 
Trusts;  and  brutal  competi- 
tion, 61 ;  laws  limiting  size 
of,    48. 

Cost,  a  scientific  system,  153; 
selling  below,  82,  267-270; 
false  statements  regarding, 
356;  no  man  should  sell  goods 
below,  203 ;  of  living,  6y\  price 
should  never  fall  below,  265; 
relation  of,  to  a  fair  price, 
243;  rise  and  fall  of  price 
with  relation  to,  256;  rules 
should  be  established  for  sci- 
entific ascertainment  of,  267; 
selling  at  or  below,  punish- 
able, 355 ;  selling  goods  below, 


57;  the  element  of  labor  and, 
163;  Texas  law  against  sell- 
ing below,  75 ;  uniform  system 
of,  recommended,  354. 

Cote  vs.  Murphy,  344. 

Cotton   growers'    organizations, 

332. 

Cotton  growers  restrain  com- 
petition, 9. 

Coulter,  J.  L.,  330. 

Courts,  and  brutal  competition, 
80;  attitude  of  English,  to- 
wards combinations,  363 ; 
attitude  of  German,  towards 
unfair  competition,  372;  at- 
titude of  German,  towards 
trusts,  370;  being  terrorized, 
323;  class  legislation  uncon- 
stitutional, 324  note,  328  note ; 
have  already  approved  combi- 
nations of  labor,  fixed  wages, 
340;  opinions  of,  referring  to 
competition,  6;  Sugar  Refin- 
ing Co.  case  and,  6. 

Crane  builders,  competition  be- 
tween, 92. 

Curran  vs.  Galen,  341. 

Customers,  relations  with,  158. 

Declaration     of    independence, 

211. 
Demagogues,  47. 
Demand  and  supply  analyzed, 

258;  shifting  from  object  to 

object,  or  from  all  objects  to 

money,  259. 
Department  stores,  60,  66. 
Disintegration  and  integration, 

30.  274. 
Distances,  annihilation  of,  39. 


414 


INDEX 


Dollar  diplomacy,  42. 
Drug  stores,  cut  rate,  31. 
Dumping  of  goods,  261  note  i. 

Economic  laws,  control  of, 
205;  under  control  of  com- 
munity, 249. 

Economic  progress,  this  coun- 
try backward  in,  184. 

Economic  rights  discussed,  290. 

Economists  of  old  school  and 
competition,  22. 

Electric  lamps,  decree  concern- 
ing, 68. 

Ely,  Prof.  R.  T.,  39  note,  48 
note. 

Employers  and  employes, 
competition  between,  30;  the 
two  great  classes,  337. 

Employers,  combinations  of, 
here  to  stay,  10;  debt  of,  to 
employes,  172;  deny  interest 
of  labor  in  industry,  296; 
fight  against  labor,  163;  or- 
ganizations, 53;  relations  of, 
with  employes,  158,  162; 
right  of,  to  combine  as 
against  labor  unions,  344 
note;  welded  together  by  at- 
titude of  labor,  128. 
Employers'  liability,  173;  a 
question  for  actuaries,  179; 
changes  in  law  of,  178;  the 
economic  view,  178;  the  law 
in  New  York,  175. 
Employes  and  provision  for  in- 
jury and  pension,  164;  as 
members  of  employers*  as- 
sociations, 57;  economy  to 
provide  for  welfare  of,  165; 
sex,  age,  and  nationalities  of, 


164;  wages  and  hours  of  la- 
bor of,  164. 

Encyclopaedia  Britannica,  defin- 
ition of  competition  in,  19. 

Engineers'  attitude  toward  re- 
duction of  hours  of  labor, 
172. 

Engineers'  threatened  strike, 
302. 

England,  conditions  in,  364; 
Parliamentary  inquiry  of  1833 
in,  367. 

Ethical  significance,  open-price 
policy,  122. 

Ethical  standards,  17. 

Ethics,  competition  contrary 
to,  13;  fair  trade  and  higher 
business  standards  and,  355; 
sacrificed  at  the  basis  of 
progress,  14;  tendency  of, 
towards  higher  standards  m 
trade,  351. 

Evolution  and  social  relations, 
14;  of  competition,  11 ;  rights 
of    the    strong    against    the 
weak   and,    15;    struggle   for 
existence  and,  61 ;  survival  of 
the   rich   and   powerful   and, 
16;   the  human   law  survival 
of  all,  16;  will  the  fittest  sur- 
vive? 32. 
Exchange  builders,  107. 
Exchange,  industrial,  loi. 
Exemption  of  labor  and  agricul- 
tural associations   from  anti- 
trust   laws,     346,    382.     See 
Chap.  XIX. 

Factory  system,  43. 
Failures,  liabilities,  266. 
Family  a  cooperative  unit,  24. 


INDEX 


415 


Farmers  are  partly  free  to 
combine,  342;  as  capitalists, 
337;  as  employers  of  labor, 
338;  associations  of,  in  grain 
growing  states,  331 ;  cooper- 
ative creamery,  331 ;  cooper- 
ative societies  of,  33,  36,  51, 
330;  organization  of,  in  Illi- 
nois^ 37  note. 

Federal  trade  commission,  see 
Trade  commission. 

Firemen  and  engineers,  brother- 
hoods of,  323. 

Fires,  losses  by,  268. 

Fitch,  John  A.,  165  note,  169 
note,  168  note. 

Fixing  re-sale  prices,  6y. 

Florida  Fruit  Producers'  Asso- 
ciation, 332. 

Foreign  trade  illusion,  42. 

Fraud,  false  representations 
concerning  bids  and  prices, 
199, 

Freedom,  rise  of,  the  develop- 
ment of  law,  348. 

Fruit  and  grocery  associations, 
54. 

Fruit  Growers'  Associations  in 
various  Western   states,  331. 

Fruit  Exchange  in  California, 
331- 

General  contractors,  unfair 
practices  by,  195. 

General  Electric  Company,  U. 
S.  vs.,  68. 

Gentlemen's  agreements,  loi. 

Georgia  Peach  Growers'  Asso- 
ciation, 332. 

Germany,  combination  of  steel 
manufacturers    in,    127  note; 


conditions  in,  368;  law  pro- 
hibiting unfair  competition 
in,  372;  number  of  syndicates 
in,  372;  socialistic  conditions 
in,  181  note. 

Gilds,  Medieval,  40,  109. 

Government  and  competition, 
27,  219  note;  duty  of,  to  see 
that  prices  are  maintained, 
218;  it  should  be  the  object  of 
some  department  of,  to  help 
manufacturers  and  dealers, 
346;  maintains  railroad  rates, 
218;  method  of  purchasing 
supplies  and  letting  contracts 
by,  criticized,  228;  work  for, 
bidding  on,  198. 

Governors  and  cotton  grow- 
ers, 9. 

Hadley,  President,  18-20,  27,  246 

note. 
History,   the   story   of  the   rise 

and  fall  of  cooperation,  25. 
Hoffman,  F.  L.,  179  note. 
Holmes,  Justice,  opinion  by,  6. 
Hospitals,  165. 
Huxley  on  evolution  and  social 

progress,  13. 

Ideals,  progress  towards,  62. 
Ignorant      competition,      see 

Competition. 
Illinois,     class     legislation     in, 

324. 
Incorporation,  federal,  291. 
Individual    power    to    run    his 

business    will     be     curtailed, 

221. 

Industrial  Commission  and 
Federal,  215. 


4i6 


INDEX 


Industrial  Commission  sug- 
gested, 353. 

Industrial  Workers  of  the 
World,  323. 

Industries,  different,  which 
pay  different  wages  and  prof- 
its according  to  earnings, 
314;  integrated,  in  competi- 
tion with  independents,  282; 
liability  of,  to  all  employed, 
173;  over-capacity  of,  is 
normal,  258. 

Industries,  vanishing,  232. 

Industrial  peace  versus  indus- 
trial war,  109. 

Integration,  30,  293;  in  steel 
industry,  277;  of  labor  would 
not  do  away  with  national 
organizations,  315. 

Intensive  and  extensive  compe- 
tition, 40. 

International  Harvester  Com- 
pany case,  342,  347  note. 

Interstate  commerce  law,  27, 
215;  forces  railroads  into 
traffic  associations,  172. 

Interstate  industries,  parties 
and  corporations  engaged  in, 

354. 

Inventions  not  due  to  competi- 
tion, 28. 

Iowa,  law  against  unfair  com- 
petition in,  'j'j. 

Jay,  John  C,  Jr.,  article  by, 
153-155- 

Kansas  class  legislation,  327. 
Kellogg  vs.  Larkin,  7. 
Kentucky,  farmers  of,  organ- 
izing, 2^^  note;  tobacco  asso- 


ciations   in,    333;    vegetable 

associations  in,  333. 
Knights  of  Labor,  323. 
Knowledge,     and     stability     of 

prices,  126;  the  basis  of  true 

competition,  94. 

Labor,  aggregation  of,  297; 
and  capital,  conflict  between, 
4;  and  the  farmer,  338;  and 
the  industry  it  works  for, 
162;  conditions  of,  and  asso- 
ciations of  employers  and 
employes,  171 ;  conditions  of, 
twelve  hour  shifts,  168;  di- 
vision of,  is  cooperation,  25; 
in  connection  with  peak 
loads,  255;  is  free,  342;  in- 
tegration of,  a  natural  devel- 
opment, 300;  interest  of,  in 
an  industry,  293;  opposition 
of  employers  to  advancement 
of,  163;  problem  of,  integra- 
tion versus  aggregation,  293; 
provisions  for  injury,  disa- 
bility or  death,  172;  scheme 
of  integration  of,  297;  short- 
er hours  opposed  by  certain 
associations  of,  169;  the  eight 
hour  day  and,  170;  troubles 
in,    underlying    propositions, 

317. 
Labor  unions,  51,  53;  and 
competition,  8,  89;  and  me- 
dieval gilds,  40;  and  social- 
ism, 3;  approved  by  courts, 
340;  as  aggregates,  299;  at- 
titude of,  regarding  interest 
of  employes  in  industries, 
296;  attitude  of,  towards 
competition,   2;     compel   em- 


INDEX 


417 


ployers  to  combine,  128;  dic- 
tate wages,  33 ;  exemption  of, 
from  anti-trust  law,  346,  382; 
shrewd  programme  of,  in 
presenting  demands,  304 ; 
strength  of,  323;  wages  and, 

295- 

La  Follette,  Senator,  59-60-61- 
63,  80. 

Law,  a  conservative  force, 
348;  a  federal,  industrial,  like 
Interstate  Commerce  Law, 
215;  as  a  rule  of  conduct, 
168;  has  little  meaning  to 
most  men,  347;  passed  to 
curb  progress,  349;  splitting 
hairs  with,  124;  to  regulate 
instead  of  destroy,  341. 

Laws,  anti-trust,  and  social- 
ism, 4;  confusion  of,  y6;  de- 
mand for  constructive,  274, 
350;  destructive,  fallen  into 
disrepute,  350 ;  encourage 
brutal  competition,  15;  favor- 
ing labor  and  farmers'  combi- 
nations, but  denouncing 
manufacturers,  314;  new,  sug- 
gested, 353 ;  of  Canada 
regarding  trusts  and  combina- 
tions, 359 ;  of  England  regard- 
ing trusts,  354;  theory  of  anti- 
trust, 28. 

Legislation,  constructive,  347. 

Levy,   Hermann,  366-367. 

Lockout  must  go,  317. 

Lottery,  business  as  a  game  of 
chance,  203. 

Louisiana,  rice  growers'  associ- 
ations in,  333;  class  legisla- 
tion in,  326, 


Lumber  company,  convicted  of 
unfair  competition,  78;  un- 
fair practices  of,  65. 

Lumber  industry  integrated, 
287. 

Lying,  ancient  practice  of,  57. 

Macrosty,  H.  W.,  276  note,  365. 

Mail  order  houses,  39,  60,  66; 
and  competition,  31. 

Manufacturers  and  dealers 
are  not  free  to  combine,  342; 
caught  between  farmers'  or- 
ganizations and  labor  unions, 
34;  timid,  345. 

Marketing  organizations,  54. 

Market  price,  no  tangible  exist- 
ence, 250. 

Massachusetts  law  against  un- 
fair competition,  76. 

Master  and  servant  notion,  57. 

McVey,  F.  L.,  207  note. 

Men  no  longer  wish  to  fight, 
10. 

Methods  of  business  changing, 
10. 

Michigan,  class  legislation  in, 
327;  Grape  Growers'  Associa- 
tion in,  330;  Tamarack  Asso- 
ciation in,  339. 

Middleman,  55,  64. 

Miles  Medical  Co.  case,  6. 

Mill,  John  Stuart,  20. 

Minnesota,  class  legislation  in, 
327;  Farmers'  Elevator  Com- 
pany in,  333 ;  law  against  un- 
fair competition  in,  yy. 

Missouri  law  limiting  size  of 
corporations,  48. 

Mogul  Steamship  Company 
case,  364. 


4i8 


INDEX 


Monopolies,  artificial,  28;  and 
unfair  competition,  79;  a  few 
real  exist,  29  note;  when 
trusts  are,  48. 

Montana,  class  legislation  in, 
325. 

Napoleon,  42. 

Nature  is  merciless,  15. 

Nebraska,  class  legislation  in, 
325;  law  against  unfair  com- 
petition in,  yy. 

New  competition,  see  Compe- 
tition, NEW. 

North  Carolina,  class  legisla- 
tion in,  327. 

Ohio,  class  legislation  in,  327. 

One-price  policy,  57,  113. 

Open-price  association,  105, 
122,  151-156;  advances  the  in- 
terests of  the  public,  227;  by 
buyers,  153;  and  labor,  no, 
166,  172;  better  prices  not  cer- 
tain under,  152;  blanks  used, 
144;  brutal  buying,  190;  Com- 
mittee on  Relations  with  Em- 
ployes and,  164;  complaints, 
140;  control  of  manner  of 
bidding  and,  198;  control  of 
prices  and,  227 ;  danger  ahead 
of,  109;  deals  with  actual 
transactions,  126;  definite 
economic  method,  122;  de- 
mands concerted  action,  120; 
discussion  of  business,  139; 
distribution  of  information, 
134;  effect  of,  on  competition, 
103;  ethical  significance  of, 
122 ;  experiment  worth  trying, 
107;  failures  of,  155;  filing  of 


contracts  is  the  final  step,  139 ; 
formed  for  not  less  than  one 
year,  146;  form  of  organiza- 
tion of,  132;  frankness  and 
truthfulness,  161 ;  industrial 
exchanges,  106;  legal,  125, 
345;  means  a  higher  individ- 
ualism, 151-156;  means  stable 
prices,  115;  means  that  sellers 
and  buyers  cooperate  to  con- 
trol fluctuation,  228;  method 
of  operation,  132;  notification 
of  revision  of  bids,  136;  not 
like  old  line  pools,  127;  open 
bidding,  135;  order  of  busi- 
ness, 147;  parties  interested, 
108;  pension  and  workmen's 
compensation,  188;  promotes 
fair,  uniform,  and  stable 
prices,  218;  promotes  har- 
mony between  employer  and 
employe,  163;  publicity,  148; 
record  of  proceedings  of, 
149;  relations  among  mem- 
bers of,  158;  relations  of, 
with  competing  plants,  160; 
relations  of,  with  employers 
and  employes,  162;  relations 
of,  with  customers,  190;  re- 
lations of,  with  sellers,  203; 
relations  of,  to  the  public, 
158,  225;  results  of,  114, 
150;  retail  trade  and,  no; 
revision  of  bids  not  fair  to 
customer,  137;  secret  advan- 
tages and,  141 ;  small  manu- 
facturer and,  113;  some  of 
the  difficulties  in  organizing, 
142;  steps  to  establish,  128; 
suppression  of  unfair  prac- 
tices by,  218;  the  big  fellow 


INDEX 


419 


and  the  little  fellow,  161 ;  un- 
fair competition  and,  161 ; 
vanishing  industries,  241. 

Open-price  policy,  advantages 
of,  146;  in  America  and 
Europe,  iii ;  false  statements 
regarding  bids  and,  200. 

Oriental  customs  prevail  with 
manufacturers  and  contract- 
ors, III,  112. 

Over-capacity  normal,  255. 

Panics  and  cooperation,  265; 
cost  of,  259;  money  proposi- 
tions, 260. 

Partnerships,  45. 

Patents,  utilization  of,  to  con- 
trol trade,  70. 

Peak  load  and  its  demand 
upon  merchants  and  manufac- 
turers, 254;  and  the  question 
of  idle  labor,  255;  in  rela- 
tion to  price  and  capacity, 
256. 

Pennsylvania,  class  legislation 
in,  326. 

Pennsylvania  railroad,  187. 

Pensions,  164,  172,  183;  paid 
by  certain  corporations,  185; 
government  protection  of 
funds,  188;  paid  by  state  in 
industries  a  socialistic  propo- 
sition, 187;  to  soldiers  and 
sailors,  185. 

People  vs.  Sugar  Refining  Co.,  6. 

Perfection,  rivalry  incentive 
towards,  18. 

Philosophy  of  trade,  203. 

Playgrounds,  165. 

Political  economy,  approval  of 


brutal  maxims  of,  287;  dis- 
mal science,  204. 

Politicians  and  combinations 
of  capitalists,  10;  and  com- 
binations of  labor,  9;  and 
competition,  5 ;  suppression 
of  competition  in  products  of 
soil  favored  by,  9. 

Pools,  see  Combinations. 

Post,  parcel,  39. 

Price,  see  Open-price  policy; 
arbitrary  adjustment  of,  to 
cost,  263;  and  cooperation, 
49;  and  cost  discussed  by 
Adam  Smith,  243;  as  af- 
fected by  integrated  indus- 
tries, 282;  as  affected  by 
open-price  associations,  106, 
141,  151;  buying  below  cost, 
230;  consumer  and  a  stable, 
216;  development  of  large 
establishments,  121 ;  discrimi- 
nation in,  between  parties 
and  localities  condemned, 
355;  distinction  between  fair 
and  right,  263 ;  fair,  uniform, 
and  stable,  essential,  6y,  213 ; 
false  statements  regarding, 
355 ;  federal  regulation  of, 
chimerical,  291;  fixed,  119; 
fixed  by  farmers*  societies, 
51;  fixed,  may  be  very  desir- 
able, 213;  ignoring  the  man 
who  pays,  57;  implied  agree- 
ments to  control,  125;  impos- 
sible to  keep  men  to  a  fixed, 
138;  inspection  of,  by  gov- 
ernment agents,  230;  knowl- 
edge regarding,  keeps  prices 
stable,  126;  marking  in 
cipher,   H2,   117;   matter   of 


420 


INDEX 


social  concern,  217;  meetings 
to  compare,  124;  on  stock  ex- 
change, 120;  open,  as  a  labor 
saving  device,  117;  oriental 
method,  11 1;  peak  load  and, 
252;  rise  and  fall  of,  with 
relation  to  cost,  256;  scien- 
tific proposition,  264;  secret, 
is  cumbersome,  117;  secret,  is 
wasteful,  121 ;  should  never 
fall  below  cost,  265 ;  should 
vary  with  cost,  257;  stable, 
as  compared  with  stable 
wages,  228;  storms  like 
wind  storms,  119;  suppressed, 
119;  and  trusts,  51;  unions 
to  advance,  52;  what  is  a 
fair,  243;  what  is  a  fixed, 
116;  what  is  an  open,  115; 
where  stable,   120. 

Price  discrimination,  81 ;  see 
also  Clayton  Law  and  Trade 
Commission ;  also  Unfair 
Methods  of  Competition. 

Production  and  cooperation,  49. 

Profit  an  individual  matter, 
price  of  social  concern,  216. 

Progress  and  large  producers, 
62;  and  morality,  17;  is  co- 
operation, II,  18;  in  last 
fifteen  years,  62]  signs  of 
change,   68. 

Protection  as  opposed  to  cer- 
tain trade  maxims,  209. 

Public  and  strikes,  305;  atti- 
tude of,  towards  competition, 
16;  bears  all  costs  of  operat- 
ing railroads,  305;  distrusts 
secrecy,  225 ;  interested  in  de- 
mands for  increased  wages 
by    railroad    employes,    311; 


profits  to,  from  disaster  to  in- 
dividuals, y2)  relations  of,  to 
open-price  associations,  225 ; 
suffers   from  secret  methods, 

lOI. 

Publicity,     a     remedy,     353; 

cardinal  principle  of  the  new 

competition,  148. 
Pure  food  law  of  commerce,  81. 

Railroad  Conductors'  Order, 
323. 

Railroads,  employes  of,  de- 
mands by,  parties  interested, 
306;  employes  of,  scheme  of 
integration,  297;  employes 
of,  suggested  programme  on 
presentation  of  demands, 
307;  firemen  of,  demands  by, 
305  note ;  questions  of,  in  rate 
controversies,  219;  Sherman 
Law  and,  172;  strike  pend- 
ing, 302;  under  Interstate 
Commerce  Law,  215;  vicious 
conditions  in,  under  old  com- 
petition, 221 ;  workings  of 
traffic  associations,  221   note. 

Railway  associations,  53. 

Rebates  and  secret  prices 
eliminated  by  open  price 
policy,  150. 

Remedies  proposed,  291. 

Re-sale  prices,  6y,  69,  83. 

Restraint  of  competition  rea- 
sonable, 6. 

Retail  stores,  48  note. 

Retail  trade,  associations  and 
customers,  57;  association  in- 
cluding employes,  57;  mail 
order  and  department  stores. 


INDEX 


421 


66;  one-price  policy,  91,  no; 
unfair  competition  and,  55. 

Rights,  dependent  upon  rela- 
tions, 211;  discussed  in  con- 
nection with  so-called  right 
to  strike,  317;  of  a  man  to  do 
as  he  pleases  with  his  own, 
288;  supposed,  to  sell  below 
cost,  289;  what  sellers  should 
not  do,  217. 

Ripley,  W.  Z.,  207  note. 

Rivalry  and  competition,  21 ; 
in  brute  competition,  18; 
true,  18. 

Roosevelt  urges  formation  co- 
operative societies,  37  note. 

Safety  appliances,   164,   168. 

Sahlin,  Axel,  2y6  note. 

Sales,  false  statements  regard- 
ing, 555- 

Sanitary  conditions,  164. 

Saw  mills,  combination  of,  280. 

Scheme  of  steel  industry,  275. 

Science  of  trade  not  yet  writ- 
ten, 203. 

Seager,.H.  R.,  179  note. 

Secrecy,  basis  of  false  compe- 
tition, 105 ;  eliminated  in 
true  competition,  87;  yielding 
to  publicity,  10. 

Segregation,  what  it  means, 
274. 

Sellers  and  buyers,  see  Buyers 
and  sellers. 

Sherman  act,  34,  74,  -^6; 
aimed  at  size,  349;  a  cooper- 
ation of  farmers  and  labor- 
ers, 334;  destructive  in  pur- 
pose, 36,  274,  347;  does  it  ap- 
ply    to     existing     conditions, 


340;  exemption  labor  unions 
and,  328 ;  repeal  of,  opposed, 
350;  not  enforced  against 
certain  classes,  34,  330; 
obsolete  and  mischievous, 
351;  railroads  and,  172,  215; 
railroad  associations  and, 
224  note;  results  of  enforc- 
ing, against  large  corpora- 
tions, 269;  standard  forms  of 
contracts  and,  201 ;  strikes  by 
railroad  unions  and,  303. 

Signs  of  change,  69. 

Smith,  Adam,  discussion  of 
price  and  cost,  243. 

Smuggling,  46. 

Social  progress  and  evolution, 
13- 

Social  relations  in  advance  of 
biological  evolution,   14. 

Socialism  and  anti-trust  laws, 
4 ;  and  competition,  3 ;  growth 
of,  3 ;  labor  unionism  and,  3. 

Society,  foundation  of,  is  co- 
operation, 24. 

South  Dakota,  class  legislation 
i"»  325;  law  against  unfair 
competition  in,  78. 

Spencer,  Herbert,  46  note. 

Squier,  L.  W.,  179  note. 

Standard  Oil  Company,  28,  59, 
60,  63,  104,  124,  187,  272. 

State  vs.  Brayton,  78. 

State  vs.  Central  Lumber  Com- 
pany, 78. 

Statistics,  mortality,  in  U.  S., 
179  note. 

Steel  industry,  interdepend- 
ence of  several  units  of,  276; 
line  of  normal  competition, 
279;  scheme  of,  275, 


422 


INDEX 


Steel  manufacturers,  combina- 
tion of,  in  Germany,  127  note. 

Strikes,  attitude  of  govern- 
ment toward,  302;  contrary 
to  social  progress,  304;  must 
go»  307;  strike  breakers  and, 
31- 

Struggle  and  competition,  21. 

Supply  and  demand  as  de- 
scribed by  Adam  Smith,  244; 
theory  of,  criticised,  248; 
wide  fluctuations  in,  under 
old  competition,  251. 

Suppressed   competition   illegal, 

95. 

Syndicates,  number  of,  in  Ger- 
many, 372. 

Taft,  President,  on  right  of 
labor  to  strike,  341 ;  urges 
formation  cooperative  so- 
cieties, 37  note. 

Tamarack  Association  of  Michi- 
gan, 339. 

Tariff  and  Tin  Plate  Industry, 
207;  as  opposed  to  certain 
trade  maxims,  209. 

Tennessee,  class  legislation  in, 
327;  tobacco  associations  of, 
333 ;  vegetable  associations 
oi,  333. 

Texas,  law  against  selling  be- 
low cost  or  giving  away  in, 
75;  Rice  Growers'  Associa- 
tion in,  333;  Truck  Growers* 
Association  in,  333,  339. 

Thomas  vs.  C  N.  O.  &  T.  P. 
Ry.,  341. 

Times  are  changing,  10. 

Tin  plate  Industry,  attitude  of 


government  toward,  209;  and 
the  tariff,  207. 

Tobacco  company,  130,  272. 

Tobacco  growers'  associations, 
333- 

Tobacco  Society,  37  note. 

Trade  anarchist,  121. 

Trade,  maxims  of,  204;  max- 
ims of,  certain  anarchistic, 
212;  philosophy  of,  204; 
science  of,  not  yet  written, 
203 ;  tricks  of,  58,  67 ;  vicious 
.  conditions  in,  under  old  com- 
petition, 221. 

Trade  Commission,  69,  80,  84, 
357 ;  law  in  full,  397-408 ;  per- 
sonnel of,  358,  397;  and  re- 
sale prices,  69,  83 ;  preventive 
rather  than  punitive,  84,  400; 
trade  commissioners,  397. 

Traffic  associations,  workings 
of,  221  note. 

True  competition,  see  Compe- 
tition, TRUE. 

Trusts,  see  also  Corporations, 
combinations  and,  in  Ger- 
many, 368;  condemned,  even 
though  they  have  benefited 
the  community,  342;  disin- 
tegration and,  272;  have 
their  birth  in  competition, 
105;  hypocrisy  of  those  who 
assail,  47;  laws  against,  34; 
logical  development,  45 ; 
prices  and,  51;  problem  of, 
271;  the  result  of  competi- 
tion, 45,  50  note;  rights  of, 
as  against  small  competitors, 
14;  segregation  versus  disin- 
tegration, 271 ;  shortcomings 
of,    46;    socialism    and    anti- 


INDEX 


423 


trust    laws,   4;    what   to    do 

with,  271. 
Turmoil  and  upheaval,  62. 
Truth  as  a  labor  saving  device, 

117. 

Unfair    buying,    see    Brutal 

BUYING. 

Unfair  competition,  see  Com- 
petition, unfair;  laws  of 
Iowa,  Minnesota,  Nebraska, 
and  South  Dakota  against, 
78;  practices  of,  enumerated 
and   condemned,  355. 

Unfair  competitive  methods,  67, 
69,  80-84,  400,  401 ;  selling  be- 
low cost,  267-270;  state  laws 
against,  83;  see  also  Clayton 
Law,  and  Trade  Commission. 

United  Shoe  Machinery  Com- 
pany, Canadian  investigation 
of,  362. 

United  States  and  economic 
progress,    184. 

U.  S.  Steel  Corporation,  29,  63, 
104;  integrated  industry,  278; 
safety  appliances  and,  268 
note;  Tin  Plate  Industry  and, 
208. 

U.  S.  vs.  General  Electric  Com- 
pany, 68. 

U.  S.  vs.  Joint  Traffic  Associa- 
tion, 224  note. 

U.  S.  vs.  Trans  -  Missouri 
Freight  Association,  227  note. 


Vanishing  industries,  232; 
attitude  of  biologist  towards, 
240;  illustrations  of,  234; 
neglect  of,  by  government, 
239 ;  open-price  associations 
and,  241 ;  suggestions  how  to 
help,  236. 

Virginia  Apple  Growers'  Asso- 
ciation, 332. 

Virginia  Farmers'  Association, 
332. 

Wages,     fixing,     51 ;     fixed    by 

unions,  295. 
Walnut    Growers'    Association, 

331- 

Walsh,  C.  M.,  247  note. 

War  is  competition,  23. 

War,  the  present,  42. 

Wealth,  our  reckless  prodigal- 
ity, 348. 

Whitwell  vs.  Continental  To- 
bax:co  Co.,  yy  note. 

Wisconsin      class       legislation 

327- 

Woman  and  child  labor,  32. 

Workmen's    compensation,  a 
new  principle,  180;  and  pen- 
sions, laws  of  diflFerent  coun- 
tries, 179. 

Young  men  progressive,  old 
men  reactionary,  156. 


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